airBaltic to boost capital

RIGA - At a closed session of the government on April 13, the decision to invest an additional 15.6 million lats (22.2 million euros) in the national airline airBaltic share capital was taken, reports news agency LETA. The decision included, in agreement with the company’s other shareholder, Baltijas aviacijas sistemas, changing the shareholders’ agreement to allow the state to have greater influence within the company. Baltijas aviacijas sistemas will increase its share capital by investing 14.4 million lats.

The new allocation will be in proportion to the size of current ownership stakes.
As Economy Minister Artis Kampars (New Era) explained, the government has agreed with Baltijas aviacijas sistems on ensuring greater state control of the company; therefore, amendments are to be prepared to the company’s shareholders’ agreement. Kampars was not able to say how many more representatives of the state would become involved in the company’s administration. However, the minister was able to confirm that airBaltic profits from this year and last will be channeled into increasing the company’s share capital, and that no dividends will be paid out.
As Transport Minister Kaspars Gerhards (For Fatherland and Freedom/LNNK) said, the funding in question will be provided from resources held by the Latvian State Radio and Television Center.

However, neither minister was able to provide a clear answer as to whether the government knew where second largest shareholder Bertolt Flick would find the necessary millions for his side of the investment. Gerhards indicated that Flick had verified his commitment to invest the money, while Kampars noted that he was unaware where Flick had found the resources even for his previous investments into the company.
Kampars admitted that the Economy Ministry had suggested a much stricter set of measures, which would have involved increasing the company’s share capital only from its profits, without using state resources. However, the ministry was unable to gain support for this position.

Gerhards added that “The investments will be used for airBaltic’s development and purchasing new aircraft. Because of raising airBaltic’s share capital, the company’s profit for last year and this year will be left with the company. Raising share capital would enable the company, with a turnover of nearly 200 million lats and several thousand employees to actively operate in the markets of Northern, Central and Eastern Europe, making it more competitive and efficient.” He also said that privatization of airBaltic is not on the government’s agenda for at least the next few years as the decision strengthens the government’s intention to continue participation in the company, reports the Latvian Institute.
After the ministers’ comments, Flick took the stage stating that approximately 1 billion euros will be invested in the development of the airline in three years. This investment will be possible thanks to the government’s decision to increase the share capital of airBaltic, he added.

The bulk of the investment will go into renovation of the airBaltic fleet. Already in a few weeks, eight ‘Dash Q 400’ planes will arrive in Riga, which will be taken on lease. Thanks to the increased share capital of the airline, the company was able to receive more advantageous financing offers from banks, Flick said. The ‘Dash Q 400’ planes have 76 seats; they will be used on routes where flight duration is under one-and-a-half hours, said the airBaltic president.
The main advantage of the larger airBaltic capital is that financing costs have decreased, Flick explained.

The airBaltic fleet is currently made up of 31 aircraft, but it is showing wrinkles, as the newest of these aircraft is already 19 years old. This year, replacement of the old planes with new ones will begin, promised Flick. ‘Dash Q 40’ aircraft will be the first step; they will replace several old planes, whereas in the fall another three pre-owned planes, which though are quite new, will be bought on lease. By the end of the year, the airBaltic fleet will include 34 planes, he explained.
On the following day, Kampars spoke out saying that the shares that the state owns in airBaltic should be sold, either at auction or at the stock exchange. “The state must not be involved [running] any business,” he said, adding, however, that the idea of selling the state-owned shares was not now on the government’s agenda. At the same time, Kampars pointed out that the state, as long as it is the owner of the controlling stake, must act as a good manager of the company. “For this reason, the government agreed to alter the airline’s shareholder agreement so as to acquire greater control over the state money it invests in the company,” said Kampars. He also said that replacing the airline’s management is not being considered.

The minister’s press secretary Sandris Sabajevs stressed that Kampars was not planning to suggest the government consider selling the state-owned shares, and that the government is committed to remain an airBaltic shareholder.
AirBaltic was established in 1995, and its principal shareholders are the state of Latvia with 52.6 percent of the shares and Baltijas aviacijas sistemas, owned by Flick, with 47.2 percent of the shares.