EU examining state financing of Estonian Air

TALLINN - Estonian Air faces an in-depth probe by the European Union executive over concerns that state aid for the Baltic country’s national carrier wasn’t in line with the bloc’s rules, reports Bloomberg. The European Commission will examine about 65.5 million euros in capital increases given to the carrier by the Estonian government since 2009, it said in an e-mailed statement on Feb. 20.

The commission started similar probes of Slovenia’s Adria Airways and Latvia’s airBaltic last November as EU rules restrict amounts of aid nations can give to prop up carriers weighed down by the bloc’s sovereign debt crisis and high oil prices. Malev, Hungary’s unprofitable state-owned airline, folded last year after the EU ordered it to repay state loans and guarantees.

While Estonia notified the Commission last December of a plan to grant an 8.3 million euro rescue loan to the carrier, it has also made three capital injections earlier without notifying the regulator, the EU executive said. The sale in 2009 of Estonian Air’s ground handling business to the state-owned Tallinn Airport may also have involved state aid to the carrier, it added.

Estonia considers that its support for the airline is in line with EU state aid rules, Ahti Kuningas, the deputy secretary general at the Economy Ministry, said in an e-mailed statement.
“The government has thoroughly considered capital injections after acquiring the majority stake in Estonian Air,” added Kuningas. “The owner’s activities have been underpinned by the understanding that on one hand, the Estonian state needs flight connections, and on the other hand, that the company can be restructured into a sustainable and profitable air carrier.”

Short-term support
Estonian Economy and Communications Minister Juhan Parts said at a government press conference on Feb. 28 that the money the government granted to Estonian Air was a loan and has to be paid back, reports LETA. Parts said that earlier the government had allocated 8.3 million euros to Estonian Air, and on Feb. 28 it added another 16.6 million euros, and based on the application of the company for the amount of the loan, set it at the total of 37 million euros.
“This is a loan that has to be paid back,” said Parts, adding that a loan is a better way of capitalization now than increasing fixed capital. The loan has to be paid back by June 20. After the company submits its restructuring plan, the loan period is extended, said Parts.

Parts added that while the earlier loan was aimed at guaranteeing the company’s liquidity, now the company is under restructuring, which is a more practical way than starting to create a new company.
Owning an aviation company is a practical necessity for Estonia, not a luxury, Parts said. “If we cut off our connections, we cut off our development,” said Parts. He said that it depends on Estonian Air itself if the restructuring works or not. “We wouldn’t be making any steps now if we didn’t see different plans from the company’s board,” said Parts.

The economy and communications minister said that the Feb. 28 loan was a plan of expanding rescue aid and the European Commission will be informed of it. He said that the information to be submitted to the Commission will be more extensive than just the restructuring plan. There is time to submit the information; everything will be done thoroughly to increase the likelihood of the Commission accepting the restructuring.

“With today’s decision, we give sufficient confidence that the wish of the government to restructure Estonian Air is certain,” said Parts.