SAS pulls out of Baltics 

  • 2009-02-04
  • By Matt Withers

TAKING OFF: In announcing the sale of its shares in Estonian Air and airBaltic in the same week, SAS has effectively said that it is pulling out of the Baltics.

TALLINN - Days after selling its stake in airBaltic, the Scandinavian airline giant SAS announced plans to sell its 49 percent holding in Estonian Air. The twin announcements effectively end the company's involvement in the Baltic states and mark a major pullout from the Baltic market.  
SAS said it was launching a new strategic model to better adapt to the current global market and to help resolve internal dilemmas.

The first step in implementing the new strategy is to concentrate on the Nordic market, a measure involving the divestment of both airBaltic and Estonian Air.  
On Jan. 30, the first measure of the plan was realized when SAS sold its 47.2 percent stake in airBaltic to the carrier's management for 14 million lats (20 million euros). SAS said that it was not interested in holding onto its stake in the company if it was unable to gain the controlling share.
Estonian Air has been in trouble since the end of last year, when executives announced that large cash injections would be required from the owners to ensure the carrier's survival. Both SAS and the Estonian government said they were not prepared to make the move without also being given a greater say in the airline's future. 

Consequently takeover talks ensued, with rumors circulating about the Estonian government increasing its 34 percent stake in the national carrier by buying out SAS 's and vice-versa 's as it became clear that a majority shareholder was needed.
However, negotiations soon came to a standstill, leaving the future of Estonian Air uncertain.
Now, with SAS making clear its intention to sell, Minister of Economy and Communications Juhan Parts has said that the airline needs a stable partner to invest in Estonian Air's long-term success while taking into account the interests of the Estonian state.

Parts did not rule out the possibility of the state purchasing SAS's stake, effectively nationalizing the company, but said this would be a temporary measure to facilitate an extended search for a suitable new partner.  
"Aviation is not the same as the railway business. It is not the government's wish to hold 100 percent of the shares in the airline," Parts said.

The government allegedly previously held talks with ferry operator Tallink over the potential acquisition of Estonian Air, though neither party has confirmed that there were formal discussions.  
Meanwhile, Estonian Air announced that the planned sale of SAS's stake will not instigate any drastic alterations to the airline's current plans, saying that it is committed to its present strategy.
The company said that its activity will be mainly directed at strengthening of its market position and toward sustainable and profitable operation.

"Estonian Air has always drawn up its strategy and action plans based primarily on the development potential of its home and target markets. Thus, the possible change in the circle of owners definitely does not mean that our existing plans will be submitted to a rapid review," the airline said in a press release. 
"Our strategic cooperation with SAS will continue and no changes are planned in that," Estonian Air said.
AirBaltic officials likewise said that the sale of SAS' shares in the company would not alter its future plans.
"The airline's management has confidence in the company's growth prospects also in the current complicated economic situation and we are prepared to continue actively developing airBaltic," said airBaltic president and CEO Bertold Flick.

In December 2008 the airBaltic management announced a decision to buy the SAS-held airBaltic shares after the Latvian government rejected a buyout offer made by SAS.
Latvian Transport Minister Ainars Slesers said that SAS had asked for 14 million lats for its holdings in airBaltic, but the national airline also had debt liabilities in the amount of 33 million lats and the total price that SAS wanted to receive from the Latvian state was 47 million lats.

It is unclear what effect the Estonia Air deal will have, if any, on negotiations for the airline to take the leading slot in operations at Vilnius Airport following the collapse of the Lithuanian flagship carrier, FlyLAL. Estonian Air is one of a small circle of companies vying for the right to take over FlyLAL's position at the airport.