New airBaltic owner on board

  • 2011-09-21
  • Staff and wire reports

RIGA - Transatlantic Holdings Company last week confirmed that it has indeed bought 59,110 airBaltic shares (the so-called SAS shares) for 9.6 million euros in a transaction meant to provide extraordinary financial aid to the airline which is experiencing serious liquidity problems, reports

The documents on the share purchase and changes in airBaltic shareholding makeup were signed and submitted to the Register of Enterprises on Sept. 9, therefore, there can be “no doubt about the transparency of the deal,” said the company.
However, the entire deal was done behind closed doors, with the Latvian state - the majority owner in the air carrier - left in the dark on the proceedings, leading to much speculation and rumors last week amidst the confusion caused by airline President Bertolt Flick’s statements on the sale of shares, along with other criminal allegations against him.

Transatlantic Holdings Company says it is alarmed that the government remains indecisive and is not taking extraordinary steps to save the airline from bankruptcy. The critical financial situation comes as a result of disagreements between airBaltic shareholders - the state and Baltijas Aviacijas Sistemas, but THC “has nothing to do with the conflict,” it complains.
THC “urges the Latvian government to take a stand on the national carrier and one of the leading companies in Latvia, in order to save the airline from possible bankruptcy - not only for the sake of the government’s shares in the airline but also for a number of companies that are closely affiliated with the airline, for instance, Riga Airport.”

If airBaltic goes bankrupt, an entire sector of the Latvian economy will collapse, as well as many companies that are associated with the aviation business in Latvia, the company warned.
One must question, then, why THC would buy into the airline knowing it is potentially heading towards bankruptcy. reported earlier that the Luxembourg-registered THC, which is associated with Russian billionaire Vladimir Antonov, had acquired the SAS shares in airBaltic.

Meanwhile, the private minority shareholder BAS, has agreed to the government’s conditions to immediately increase the airline’s share capital, as well as financing for the airline’s development, BAS co-owner Flick said on Sept. 16. “The government has no more hurdles in implementing its decision to increase airBaltic’s share capital by 63.6 million lats (90.8 million euros). The current situation surrounding the airline has hindered both shareholders, cost the airline huge losses, as well as troubled passengers,” Flick pointed out.

The government agreed to take part in bailing out the airline, stipulating a change of company management as a primary condition. Other conditions include that changes have to be made to the shareholders agreement so that the state would have more influence in the airline’s decision making process. An agreement also has to be made so that Riga Airport remains the airline’s main hub, as Flick has indicated he wants to move the headquarters to Vilnius.

In order to save airBaltic from its “dead end,” Flick must be replaced, asserted Economy Minister Artis Kampars (Unity) last Friday. It is obvious that Flick currently delays solving airBaltic issues, pointed out the minister.
Kampars believes that, in order to solve the airline’s problems, its minority shareholder, BAS, should take over control of the airline as soon as possible, and the airline’s president should be replaced by a professional, who would be able to cooperate with the airline’s majority shareholder, the state, and agree on investments and the airline’s sustainable operations strategy.
“The latest developments at the airline - the cancelled flights and hundreds of laid-off employees - indicate that Flick is wasting the airline’s most valuable assets: passenger trust and professional employees,” said Kampars.

AirBaltic has been facing rough weather lately. It is planning to lay off about 500 employees, said the Latvian Federation Trade Unions of Civil Aviation. The federation explains that the airline is laying off its employees like other businesses in similar situations - trying to pay out as little compensation as possible. “It is not going smoothly,” federation representatives said. The lay-offs will affect pilots, cabin crew and other professional employees at the airline.
Overall, airBaltic employs over 1,000 persons, including 400 cabin crew.

BAS in any recapitalization of the airline would need to invest an equivalent amount as does the state. The minority shareholder, however, is in a severely weakened financial state and it does not have the necessary resources to ensure the required capital and investments for the airline’s further development.
Therefore, the government’s consultant Prudentia focuses its gaze on Latvijas Krajbanka and its shareholders, when discussing stabilization of the situation at airBaltic. “The availability of the bank’s financial resources is more convincing [than Flick and BAS],” says Prudentia board chairman Karlis Krastins.

“We do not know the details, but according to publicly available information, BAS’ assets have already been put up as security in Latvijas Krajbanka and its main shareholder - Snoras bank. BAS cannot perform any actions or make new investments without the consent of Latvijas Krajbanka. BAS Holding is only an empty shell, and its operations depend on Latvijas Krajbanka, Snoras bank and other creditors, explained Krastins.

He mentioned the possibility that Latvijas Krajbanka could replace BAS in the airline.
Amid rumors of potential buyers trying to pick up the airline on the cheap, Snoras bank, though, has denied media reports that it is participating in negotiations to buy a stake in airBaltic, according to Bloomberg.
On Sept. 14, Flick, in attempting to turn attention from himself, criticized Latvian politicians for their “hysterically exaggerated reaction” to events as he announced that the airline will decrease the number of its flights by 726 in November and 723 in December.

This is after flights were cancelled last week, leaving travelers stranded in airport terminals, with no explanation from the airline.
In November 2010 it flew 4,002 flights. More money from the state likely won’t help. Flick’s management of the airline, from a Berlin hideout, is resulting in substantial operating losses - 34.2 million lats (48.8 million euros) in 2010 - and this won’t be solved by the shareholders ‘investing’ more money into it.

Worries increase to the north. The Consumer Protection Board in Estonia has recommended that people not buy tickets on airBaltic flights, due to it having cancelled flights without any explanations, reports Ohtuleht.
The complete disappearance of airBaltic from the Baltic States aviation market “is not in the interests of Estonian plane travelers or the Tallinn Airport,” said Riigikogu economy committee and Tallinn Airport’s council member Arto Aas, reports Delfi.

“AirBaltic is, after Estonian Air and Ryanair, the third-largest aviation company in Tallinn Airport, which services nearly 20,000 passengers a month. There is a real danger that if airBaltic disappeared, a part of those passengers would not be served by other aviation firms either, and flying possibilities from Tallinn would deteriorate considerably in the short-term perspective,” said Aas.

Aas said that aviation is a very capital consuming and risky business where decisions are not made easily. Bringing any new aviation firm to Tallinn requires major efforts. “It is clear that airBaltic’s messy financing schemes and non-economic decisions could not be sustainable,” said Aas though.
Aas stressed that competition on routes is not only in the interests of plane passengers but benefits the whole sector: for example a new operator entered the Tallinn-Moscow route recently but did not take away clientele from the previous operator, instead the number of passengers on the route doubled.

Prime Minister Valdis Dombrovskis’ (Unity) press secretary Martins Panke said - incorrectly - that companies can solve their insolvency issues with share capital increases. Greece, for example, is insolvent. More EU money will help its ‘liquidity,’ but will not solve Greece’s ‘solvency’ problems: only a massive structural change in its operations - involving lowering costs and increasing revenues - will solve them.
Nonetheless, Panke says that the current situation indicates that Flick is incapable of managing the airline, therefore the government calls on the airline’s president and BAS to fulfill the criteria immediately to ensure the observation of state interests.

An aggressive takeover of the airline would cost the state from 100-200 million lats, Riga International Airport Chairman Arnis Luhse said during an interview on Latvian Radio on Sept. 16. Luhse believes that it would be the most acceptable solution in the current situation.

The decision on the airline’s future must be made as soon as possible, and the second solution - the airline’s sale to a private investor from China, Russia or any other country - is also positive, emphasized Luhse.
The current situation must not continue - the airline’s state deteriorates with each passing day, he said. Those Lithuanians who were stuck at the airport due to flight cancellations earlier this week, mentioned that Latvians will soon be forced to fly from Vilnius, said Luhse.

As the airline spins out of control, the Cabinet, which on Sept. 13 failed to take any action, was expected to meet again on the matter on Sept. 20. With the election out of the way, it is expected that the government will now get back to the business of fixing its airline disaster.