The Cypriot government is seeking clearance from Brussels to pump €17 million of emergency aid into Cyprus Airways in an effort to save it from bankruptcy.
However, the European Commission has already signaled concerns about continuing efforts to save the loss-making airline from collapse, according to the Sunday Times.
The commission opened an inquiry in March into whether the rescue attempts are in breach of EU laws on state aid.
A plan to restructure the carrier, which made losses of €55.8 million last year, are due to be presented to the EC this month.
Cyprus Airways received a government loan of €73 million at the end of last year and a further €31.3 million in January.
The government of Cyprus wants to provide the additional funding to enable Cyprus Airways to continue to fly tourists and potential investors into its two international airports.
Plans to turn the airline around include cutting its fleet from nine to six aircraft and make further redundancies to add to 490 jobs which are being cut by the end of the year. Staff that remain face a pay cut.
Cypriot finance minister Harris Georgiades, quoted by the newspaper, said: “We feel a locally-based carrier will give service to the economy. It won’t be profitable without radical decisions.”
But the commission said it doubted whether a “credible restructuring plan” is in place for the airline.
Cyprus Airways recently cut fares by 30% on routes to 15 destinations in Europe and the Middle East.
Measures to boost tourism include the implementation of an open sky policy to tempt foreign airlines to use the country’s airports for connecting flights.