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Suspected illegal activity haunts airBaltic

Sep 14, 2011
From wire reports

RIGA - The activities of airBaltic president Bertolt Flick may have caused “considerable losses” to the state, claims Latvia’s Transport Ministry, as it comments on information that the airline’s minority shareholder, Baltijas aviacijas sistemas (BAS), has attempted to register bogus shares to gain a controlling interest in the airline, reports Nozare.lv.

Ministry spokesman Aivis Freidenfelds said that the ministry has turned to the Register of Enterprises and law enforcement authorities, informing them about the possible violations by Flick. The ministry emphasizes, though, that the state still owns the majority stake in the airline, and the distribution of shares between the airline’s shareholders has not changed.
On Sept. 11, Prime Minister Valdis Dombrovskis (Unity) spoke about these BAS activities during a PM candidate debate on the TV3 television channel. TV3 reporters obtained documents which indicate that the state has possibly lost its controlling interest in the airline, and that BAS wants to document the changes with the Register of Enterprises.

Dombrovskis, however, the next day confirmed at a coalition meeting that the Latvian state was still majority owner.
TV3 also reported that the Corruption Prevention Bureau and Prosecutor General’s Office have been informed about BAS activities, and the Transport Ministry, in a secret letter last week, urged the Register of Enterprises not to register anything regarding the airline’s shareholders that could have a negative impact on the state’s influence in airBaltic.
Dombrovskis’ statements that BAS has attempted to register bogus shares are based on “inaccurate information,” counters BAS board member Inga Piterniece. BAS has not turned to the Register of Enterprises to register its airBaltic shares and has not bought or attempted to buy additional airBaltic shares, she emphasizes.

Adding to the dispute between shareholders now are legal uncertainties regarding a certain number of shares in the airline, and it is possible that shareholders will have to buy out these shares, albeit for the nominal value, said Transport Minister Uldis Augulis (Union of Greens and Farmers) at a press conference on Sept. 13. But from whom to buy the shares is still unknown.
Augulis explained that the focus is on 59,110 shares.

According to the Register of Enterprise data, the airline’s registered capital stands at 534,725 lats (763,800 euros), whilst its paid-up capital is 475,615 lats, creating a negative balance of 59,110 lats. According to a shareholders’ decision, these shares in question are considered to be paid-in capital, but the Register of Enterprises interprets them as unpaid as of yet.
Flick says that the Transport Ministry previously stated that the airline must cover the difference between its paid-up and registered share capital and only then will airBaltic shareholders be able to decide on the airline’s share capital increase, in terms of a re-capitalization.

AirBaltic will turn to the Prosecutor General’s Office regarding speculation about the covering of the difference between the paid-up capital and registered share capital, said Flick. He claims that the board has attracted the necessary 10 million euro funding to cover the difference, accusing the shareholders of being unable to agree on the share capital increase.

Following this announcement the Register of Enterprises has not yet made any decision regarding the shares until it is clear whether the transaction was legal.

Transport Ministry Deputy State Secretary Dzineta Innusa explained that the ministry currently has no information as to who has bought the disputed shares for 10 million euros.
The Transport Ministry has turned to Riga Central District Court, asking that any deals with airBaltic shares be put on hold until it becomes clear why airBaltic’s management decided to sell them.

It is “not set in stone” that airBaltic will receive funding from the state budget, said Finance Minister Andris Vilks (Unity) on the LNT morning show ‘900 sekundes’ on Sept. 8. He emphasized that the state has been misled about the actual financial situation at the airline for a long time. At the moment, there is no information or certainty that BAS has the necessary means to invest in the airline’s share capital proportionately to the number of its shares.

The airBaltic bailout received the green light from the government, but not from the finance minister. The ministry will not give in to Transport Minister Uldis Augulis’ (Union of Greens and Farmers) request for additional funding, said Vilks.
Amidst the ongoing chaos talk escalates about whether the state should be running an airline, rather than putting it in private hands – and ownership.

The state should have sold its shares in airBaltic long ago, said former Latvijas Krajbanka president Martins Bondars in an interview with the magazine Lietiska Diena.
The state maintains its stance that its shares won’t be sold, even in the face of a continuing need for huge capital investment into a company that is hemorrhaging cash, along with growing claims of corruption within the group.

Additional uncertainty as to the airline’s future comes from the management of Latvijas Krajbanka who on Sept. 13 said that the bank would no longer be able to support the airline with its current liquidity and capital adequacy indexes. Tens of millions of lats are required to ensure the short-term operations of the carrier, said the bank’s president, Ivars Prieditis, though he declined to predict how long the airline could last without additional funding, and expressed hope that it is not too late already.
If the airline is losing money on an operating basis, additional government funding would be equivalent to just throwing it away, and owners and management need to come up with a viable business plan and stop the revenue from performing a continual disappearing act.

A thorough audit, possibly with a new auditing company, could serve to improve support in the airline among disgruntled taxpayers as well.
On Aug. 6 the government agreed that amendments to the national budget would be prepared to ensure the necessary financial investment in airBaltic. The exact sum was not announced; however, according to calculations by consultant firm Prudentia, the airline’s shareholders would need to each invest proportionately 50 to 70 million lats.

Vilks previously said that any financial investment in airBaltic will only increase the budget deficit. Though the exact amount of investment is not yet known, he emphasized that the State Treasury has enough means to invest in the airline’s share capital. It could, however, have a negative impact on reaching the country’s budget deficit goals. AirBaltic issues must be solved within the framework of this year’s budget to avoid additional tension in the 2012 budget.
The minority shareholder said they are ready to increase the airline’s share capital and continue to fund its development without the state’s participation. If the state decides not to participate in the airline’s funding, its share will reduce to 25 percent, emphasizes BAS.

BAS continues to support airBaltic management’s offer to increase the airline’s share capital by 63.6 million lats, with both shareholders proportionately investing in the airline’s further development.
The government says that it is still too early to talk about budget amendments and sources of funding, since it still has not received precise information about the necessary investment in the share capital.
While the government fiddles, the airline burns. Latvijas Krajbanka, wants to see the state take action to solve the crisis.
Riga International Airport put itself on ‘full alert’ on Sept. 13 due to a number of airBaltic flights being cancelled, though with no explanation from management. AirBaltic cancelled seven flights to five destinations, offering passengers to exchange their tickets for other flights.

The airport’s chairman, Arnis Luhse said that the airport had been unable to contact the airline’s managers, though he declined to comment as to whether the cancelled flights are connected with the struggle between the airline’s shareholders.
As of early Sept. 14, airBaltic had cancelled 18 flights.

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