Statement on airBaltic's near financial collapse is exaggerated - Latvian experts

RIGA - The statement of Estonian aviation expert Toomas Peterson that the Latvian national airline airBaltic is approaching financial collapse is exaggerated, Latvian financial and asset management experts told LETA.

Girts Rungainis, a partner at financial consultancy Prudentia, told LETA that these statements are aimed at attracting attention with the obvious intention of creating panic or reducing the company's value.

This is understandable, he said, as the company is currently negotiating with potential investors and possibly new co-owners, as well as preparing to go public.

"Given that Estonia itself and Tallinn Airport benefit greatly from the way airBaltic operates, these statements from an Estonian aviation expert are incomprehensible," Rungainis said.

In his view, airBaltic is a fundamentally good business and a necessary one for Latvia and the Baltics, but is in a relatively difficult situation due to the Covid-19 pandemic and the subsequent Russian invasion of Ukraine. However, Rungainis insisted that the situation is getting better.

"The fact that the first half results show a loss may cause hysteria for people who do not understand the situation, but I would say it is a normal part of the development of this company. Of course, it is not all great, because we would like to see the company making a billion euros every five minutes, but in real life we see that things are getting better," said the expert.

Andrejs Martinovs, Chairman of the Board of INVL Asset Management, also said that the statement about the financial collapse of airBaltic is a bit exaggerated. He explained that this was confirmed by the market situation, i.e. what was happening with airBaltic's bonds on the secondary international bond market, where there were no categorical reactions after the publication of the semi-annual report.

In his view, the situation is not very encouraging because it can be concluded that in the first half of the year, including the second quarter, there have been a number of negative external factors that are not dependent on the business model itself.

At the same time, Martinovs said that he did not see the company in danger of financial collapse at the moment.

Commenting on a potential initial public offering (IPO) of airBaltic shares in the second half of this year, he said that the outlook remained good, as half of the company's losses were due to external factors. At the same time, the company's performance also showed a number of positive indicators, the highest in the airline's history.

"Accordingly, advisers who are experienced and see the situation from the outside (investors) and from the inside (the company's operational data) play a big role. If airBaltic continues to see the prospects for this IPO step, then the company will move towards it," Martinovs said.

As reported, Estonian aviation expert Peterson said that Latvia's airBaltic is nearing a financial collapse and the Latvian government faces decisions regarding whether and how to proceed with its national airline.

In Peterson's assessment, airBaltic is using a rather old-fashioned national airline model that requires a lot of investment, while the hope of becoming profitable remains rather distant.

The expert told Estonia's public service broadcaster ERR that airBaltic does not have the right business model as it does not pay off on this kind of scale. Like Estonia had Estonian Air, trying to go very wide, so that if there is an effect of scale, you can make a profit, but it takes a long time and a lot of investment.

"Basically, it is not a profit-making project, but the Latvians have the same argument that Estonia might have, that (without it) you wouldn't be able to fly out of this corner of the world," Peterson said.

It has also been reported that airBaltic national carrier closed the first half of 2024 with a loss of EUR 88.8 million in contrast to a profit made in the same period a year ago.

The company's turnover, meanwhile, grew 16.5 percent year-on-year to EUR 339.3 million in the first six months of 2024.

Gauss informed that airBaltic's adjusted EBITDAR was nearly EUR 77 million, which is an improvement of approximately EUR 22 million or 39 percent over the first half of 2023. performance. The airline's average load factor grew to 76.9 percent from 74.5 percent.

The company's CEO Martin Gauss indicated that airBaltic experienced the net loss primarily due to the anticipated Pratt & Whitney engine shortage in 2024, accelerated depreciation costs driven by engines undergoing full interval shop visits ahead of schedule – partially caused by the powdered metal issue – as well as currency depreciation, and one-off costs associated with the early redemption of our previous bond.

airBaltic posted a turnover of EUR 291.3 million and a profit of EUR 14.604 million for the first half of 2023.

In the full 2023, airBaltic's audited turnover was EUR 664.289 million, up 33.2 percent on 2022, and the company made a profit of EUR 33.852 million, compared to a loss the year before.

The Latvian state owns 97.97 percent of airBaltic's shares, while the financial investor, Danish businessman Lars Thuesen's Aircraft Leasing 1, owns 2.03 percent.