Pfizer Makes an Unusual Enemy in $2 Billion Fight over Unwanted Covid-19 Vaccines

Dow Jones
Yesterday

Pfizer is taking aim at an unusual target in its quest to get paid for millions of unwanted Covid-19 vaccines: air-traffic controllers.

The drug giant has pursued European governments seeking to enforce pandemic-era contracts to buy billions of dollars' worth of vaccines that haven't yet been made and are no longer needed. In April, it won a yearslong legal fight to hold Poland and Romania to deals for more than 90 million shots.

To recoup the $2.2 billion owed, Pfizer is going after money used to pay air-traffic controllers. In July, it won court approval to place a lien on fees airlines pay to access the countries' airspace.

The dispute is one of the strangest legal battles to emerge from the dark days of the pandemic and shows the unconventional tactics companies deploy when trying to collect from governments. Pfizer's move has sparked criticism from Poland and Romania's air-navigation agencies, which accuse the company of jeopardizing air safety.

"Airlines are paying for our service and our money is taken as a hostage," said Magdalena Jaworska-Mackowiak, chief executive of the Polish Air Navigation Services Agency. "The court case on vaccines is the state and Pfizer. Nothing to do with aviation."

Pfizer's action cuts off access to funds that account for more than 80% of the air-navigation agency's budget, the CEO said, adding that it would take up to five years to cover the vaccine debt.

Pfizer says its actions are an appropriate and measured response to uphold its contract.

"The court's judgment in favor of Pfizer confirms the importance of the contractual obligations that underpinned a successful European pandemic response," a company spokeswoman said.

Pfizer's claim dates back to 2021 when the European Union negotiated a landmark agreement to secure hundreds of millions of Covid-19 vaccines on behalf of its 27 member states. As part of the deal, the company made local production and delivery commitments for the shot, which was developed with BioNTech.

But the deal-struck at a time when the world was clamoring for vaccinations-ultimately left Europe with far more shots than it needed.

While other EU countries reached settlements to exit their contracts, Poland and Romania resisted. In early 2022, shortly after Russia invaded Ukraine and with the pandemic easing, Poland said it could no longer afford to take delivery of 63 million more doses. Romania followed suit shortly after.

The standoff has grabbed national headlines and drawn the ire of politicians and the public. Poland's health minister, Jolanta Sobieranska-Grenda, compared the sum Pfizer is pursuing-EUR1.3 billion, equivalent to roughly $1.5 billion-to the country's annual spend on cancer medications. The pharmaceutical giant is due another EUR600 million from Romania.

It isn't atypical for companies to go to great lengths to recover money from governments. In 2012, Elliott Investment Management orchestrated the seizure of an Argentine naval ship in a battle over a debt default. In 2021, British oil company Cairn Energy won the right to seize apartments in Paris owned by the Indian government in a tax dispute.

Air-traffic control fees have been targeted several times in recent years, including in commercial standoffs involving Albania, Bosnia and Herzegovina and Spain.

Unlike in the U.S., where airlines pay the Federal Aviation Administration directly, in Europe the fees are collected by a regional body before being dispersed to individual countries.

That body-the European Organisation for the Safety of Air Navigation, known as Eurocontrol-recently won new protections that prevent companies from targeting its funds.

However, the new rules only came into force on Aug. 9, so they don't apply to the liens placed on Poland and Romania's funding.

Both countries have appealed the ruling freezing their funds. Appeals are set to be heard in October and January.

Pansa, Poland's air-navigation agency, in recent weeks secured emergency government funding to cover staff salaries and pay invoices for items including backup power systems and cybersecurity. Those funds arrived less than 24 hours before the agency was set to run out of cash, according to CEO Jaworska-Mackowiak.

Romania's Romatsa, meanwhile, reduced salaries by 20% for its 1,700 staff and renegotiated payment terms with suppliers. The agency subsequently won a reprieve last month after it argued that it would run out of money before its January hearing.

"It is a period of crisis," Romatsa CEO Adrian Cojoc said in an interview. The agency had already stepped up cost-cutting to pay down debts accrued during the pandemic, he added.

Pfizer's claim on the air-navigation fees comes at a time when finances for both agencies are stretched. The war in the Middle East has reduced traffic and fees from carriers using their airspace to get to and from the Persian Gulf. Ukraine's recent campaign to flood Russian airspace with drones has also reduced flight numbers.

The war in Europe has also added to controllers' workload. They now spend shifts on high alert, prepared to redirect flights within a minute of a Russian strike in western Ukraine, Pansa's CEO said. Her teams are also responsible for coordinating air traffic for North Atlantic Treaty Organization military aircraft.

"This is dangerous for European security," said Jaworska-Mackowiak, adding that she was working to secure loans to cover next year's budget, including money needed to train new controllers.

"I'm here for air-traffic management, not for fighting with Pfizer," she said. "This is nonsense, honestly."

 

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