RIGA - Part-owner and president of airBaltic, Bertolt Flick, says he is ready to consider buying the entire state shareholding in the airline, reports Nozare.lv. With conditions. “Let us put it like this - yes, if it was possible to finance this, then it would be possible to look at it,” said Flick when asked whether he would be ready to purchase the state’s 52.6 percent controlling interest in the airline. Flick is currently the second largest shareholder through his company Baltijas aviacijas sistemas (BAS).
This comes after much debate about Flick’s attempts at running a second, competing business on the side, while he is still acting president of the state-owned airline.
There has been too much “chatter” over possible conflicts of interest regarding his activity in running the Latvian national airline, while at the same time becoming a private investor in a newly-established Lithuanian airline, said Flick in an interview with the daily Diena. He sharply criticized representatives of the state who “badmouthed” airBaltic in the public space but avoided entering into normal talks with the airline’s second largest shareholder – Flick’s Baltijas aviacijas sistemas.
Asked to comment on recent statements by state officials that Flick was sitting in two chairs and would have to choose just one, the businessman howled “Something has been mixed up here. BAS is a foreign investor in airBaltic. It is not the case that BAS can only invest in one airline; moreover, I have also looked at other investments. I am not sitting in two chairs; I have a business which invests in various other businesses, and I manage airBaltic. It is time to stop the chatter about conflicts of interest - I refuse to chatter all the time about conflicts of interest.”
The airline founded in Lithuania is to operate as a low-cost airline, with only one class of service. The new company will not concentrate on transit, but on the local market - flights to and from Vilnius. The head of airBaltic “promises” that competition with the Latvian airline will be “minimal.”
The two companies “will have separate business models, and will offer their services in two different markets,” said Baltijas Aviacijas Sistemas representative Juris Petersons. “The planned airline in Lithuania and airBaltic will be airlines that will be operating in the same region, but will have different business models. Both airlines will offer their services in two different markets,” the company explains.
Baltijas aviacijas sistemas plans to enter the Lithuanian market and commence flying from Vilnius next April, Lithuanian Transport Minister Eligijus Masiulis and Baltijas Aviacijas Sistemas co-owners Flick and Kristian Kirchheiner announced at a press conference on Sept. 20.
The company has established a new airline which will have its headquarters in Vilnius. The airline’s brand name will be announced in January. It is planned that the company’s initial investment will total 3.5 million litas (1.0 million euros), which will later increase to 69 million litas.
Asked as to why airBaltic did not simply found a subsidiary company in Lithuania, Flick claimed that Prime Minister Valdis Dombrovskis (New Era) has called for the airline to focus its activity in Riga. “Although I read in the press that it is difficult to influence me, in fact until now there has been not one concrete demand from the state to change our strategy. There has not been one reprimand from the council or the [Transport] Ministry about any concluded agreement or deal, or concerning the sale of the brand. Everything that is currently going on in the public space is more or less just political slandering. There are people who are trying to bully me and blacken my reputation. I think that here the issue is not about business,” stressed Flick.
The airline president believes these processes are connected with preparations to privatize airBaltic. Flick is not currently planning to sell his shares in airBaltic, but revealed that if the airline was registered on the stock exchange and sold there through auction, BAS would be happy to waive its right of first refusal on the state’s share packet.
The state, the largest shareholder in the national airline, has limited opportunities for influencing the actions of the airline’s president, Bertolt Flick, said Dombrovskis on the LNT show ‘900 Seconds.’ In accordance with an agreement concluded during Ainars Slesers’ (Latvia’s First Party/Latvia’s Way) final working week as transport minister, the powers of the airline’s council were significantly reduced. As Dombrovskis notes, without the agreement of Flick as the minority shareholder, amending this agreement is impossible.
Dombrovskis pointed out that Flick has now changed his position on the matter of the airBaltic brand, and now believes the state should repurchase it from Baltijas aviacijas sistemas, rather than the initial plan of simply reversing the deal and returning it to the airline.
AirBaltic has paid 93,500 lats (133,500 euros) so far for the use of its own brand to Baltijas aviacijas sistemas, according to the Latvian State Television show ‘De Facto.’ In an interview with the show, Flick admitted to misleading the Transport Ministry in relation to the deal for the airline’s brand. At the beginning of August, Flick informed Transport Minister Kaspars Gerhards (TB/LNNK) that airBaltic had made no payments to BAS for the use of the brand. However, the BAS annual report indicates that 93,500 lats has been paid. In the interview, Flick admitted having made a mistake and misleading the public.
As business daily Dienas Bizness reported earlier, airBaltic could have to pay up to 1 million lats a year for use of the brand. The annual report of BAS for 2009 not only shows the huge debt taken on by the company to acquire the airBaltic brand, but also the intention to receive revenue from airBaltic for its use.
As previously reported, in December of last year, the Latvian national airline sold the airBaltic brand and all related trademarks to the company Baltijas aviacijas sistemas.
On Sept. 21, Dombrovskis said that Flick will have to make a decision on his future business plans. The Latvian prime minister emphasized that Flick will not be able to be in charge of airBaltic, where the state of Latvia holds controlling interest, whilst at the same time also being in charge of a competing airline. “These activities will have to be separated,” he said. Flick himself will have to make the decision as to whether he wishes to run airBaltic or an alternative airline, Dombrovskis added.
Dombrovskis has sent a letter to Prosecutor General Eriks Kalnmeiers, asking the prosecutor’s office to examine whether the shareholder cooperation agreement that then-Transport Minister Slesers signed on behalf of the Republic of Latvia with Baltijas aviacijas sistemas on March 4 last year is in the interest of the state. The shareholder cooperation agreement signed by the transport minister significantly limits the opportunities of the state, a majority shareholder in airBaltic, to manage its shares in the airline, and gives disproportionate rights to the minority shareholder, stressed Dombrovskis.
Furthermore, the shareholder cooperation agreement was signed just eight days before the government of Dombrovskis was confirmed in office by the Saeima, and signing the agreement had not been authorized by the government.
Dombrovskis has enclosed a copy of the agreement with his letter to the prosecutor general, pointing to several facts that give grounds to believe that the agreement is not in the interest of the state. Already the airBaltic founding agreement, signed on Aug. 29, 1995, with Scandinavian Airlines Systems Denmark-Norway-Sweden and three foreign investment funds, seriously impeded options of the state, the majority shareholder in airBaltic, to exercise its majority rights. SAS, the second largest shareholder, decided strategic airBaltic issues, Dombrovskis writes.
Dombrovskis also notes that Slesers signed the agreement with Baltijas aviacijas sistemas without the government’s consent, and also points to other inconsistencies in the agreement.
Whether or not Flick ends up buying the state’s shares in airBaltic, he feels that the most important thing at the moment is to define the airline’s strategy, as well as that of the state, for the next three to five years. In Flick’s view, the discussions which have arisen over the plans of BAS to create a new airline in Lithuania have again made clear the necessity to speak of the role of airBaltic as a strategically important company in the development of Latvia itself.
At the same time, the airline president indicates that these are long-term questions that are not decided “three days before a general election,” but rather later, when a new government has been formed and professionals are ready to sit at the table and decide on the best way to move forward. “This is not a matter that should be assessed and decided on this week; that is definitely not possible,” believes Flick.
Dombrovskis is in agreement with Flick on the need for a clear development strategy for the airline, though he stresses that sale of the state-owned shares are currently not on the agenda.
Flick asserts that airBaltic could start up an airline in another country. “I believe that airBaltic definitely could establish an airline in another country,” he said. Although he declined to elaborate, he said that this would not happen this year.
Regarding his plans with BAS for Lithuania, Flick said that airBaltic, with its current business mode, would not be able to implement such projects in a profitable way. “We must understand that airBaltic cannot be a monopoly in all three Baltic countries; there is, and will always be, competition. There is the minimum number of destinations that a capital simply must have flights to in order to attract investments and ensure economic development. There are two options - either this happens with us or without us. AirBaltic presently has no money to implement such projects,” Flick said.
Several investment banking experts have expressed their opinions that the state should consider selling its stake in airBaltic, although this is not the most favorable economic climate for selling off assets.
BAS purchased its 47.2 percent stake in the airline at the beginning of 2009 from SAS, paying 14 million lats.