TALLINN - Estonian Air's owners are left with little option but to inject funds into the struggling airline as the company speculates annual losses of up to 100 million kroons (6.4 million euros).
The daily Postimees reported that the estimated loss, compiled by members of the national carrier's supervisory board, is a conservative guess of the financial damages incurred by rising fuel prices and increased competition.
In October the airline announced plans to overhaul the company's operating strategy to circumvent losses caused by changing market conditions, choosing to instigate a diverse network of local flights and scale back international services.
However, with dwindling profits the company is left in need of hefty cash injections from its owners in order to purchase the new, lower capacity planes required to make domestic operations feasible.
Estonian Air's financial dilemma has prompted concerns that the company may be facing bankruptcy, although this has been staunchly denied by the SAS-affiliated carrier.
However, according to statements made by Economy Minister Juhan Parts, the government, which owns a 34 percent stake in the company, is not ruling out the possibility.
Parts has been critical of Estonian Air's strategy and planning, and said that the government's limited ownership of the company means that if cash injections are to be made then the government will have very little influence over how it's spent.
"There are no ambitions, nor a clear development plan. They are opening and closing lines, then opening next lines. The state is interested that the airline operates efficiently and develops and that Tallinn has a sufficient number of direct links to other destinations," said Parts.
The minister has suggested that despite its minority holding, the Estonian government should be appointed chairman of the supervisory board and granted veto power in making important decisions. The government appears caught in a bind, as selling their minority stake in the floundering airline is unlikely to warrant a reasonable offer and yet without greater control over the company's direction injecting capital would be reckless.
Company spokesperson Ilona Eskelinen responded to the minister's criticism by asserting that Estonian Air has had to adapt to changing market conditions and has developed a feasible strategy for the airline's future.
"The global and regional economic downturn and consequent changes in consumer behavior are forcing us to make radical changes in our plans for the next few years. The changes include schedule optimization, the introduction of new and economical aircraft in spring 2009, and cost cutting as a result of reduced volumes, including numerous job cuts," Eskelinen told The Baltic Times.
At a press conference on Nov. 13, Estonian Air President Andrus Aljas said there will be a reduction in the fuel surcharge included in tickets as another measure to boost performance.
The company has already scheduled job cuts and is reducing the office hours of their call center by 4 hours a day. Now operating from 9 a.m. to 6 p.m. rather than the previous 8 a.m. till 9 p.m., the changes will also see the call center closed on weekends.
"As we're having changes all around our house, they will naturally also affect the call center," said company spokesperson Ilona Eskelinen.
Estonian Air is owned chiefly by SAS, which has a 49 percent plurality stake. The Estonian government accounts for 34 percent of the company and the remaining 17 percent is owned by the investment bank Cresco.