Estonian Air is planning to raise ticket prices in the near future because its insurance costs have increased seven times.
"A number of European airlines have already increased their fares to cover such high insurance premiums," said Raimond Made, spokesman at Estonian Air, which normally serves 1,000 customers a day. "Our insurance premiums have increased by 7 percent, so we expect ticket prices to increase by 3 to 5 percent."
Estonian Air signed new, more expensive insurance agreements after its business was halted for three days. From Sept. 26-28 it suspended flights of its aircraft and operated a limited service using Maersk Air aircraft because insurers reduced cover against war and terrorism attacks on its own planes from $1 billion to $50 million.
The planes leased from the Danish airline Maersk Air, holder of a 49 percent stake in Estonian Air, had the necessary coverage from the Danish state.
Unlike governments elsewhere in the world Estonia's government said it was not able to fill the gap left by the insurance companies and turned down a request from Estonian Air for guarantees of 10 billion kroons ($588 million).
Under Estonian law such a guarantee may not exceed 15 percent of the state budget - currently 4.5 billion kroons.
"We could not make any compromises," said Olev Schults, chairman of Estonian Air. "Estonian Air cannot operate with reduced insurance coverage because it would expose the company to unacceptable economic risks and because aircraft leasing and other agreements require higher insurance coverage."
Estonian Prime Minister Mart Laar turned to Danish Prime Minister Paul Rassmussen requesting he extend Denmark's insurance of Maersk Air to Estonian Air as well. But by the time Laar made his call to Denmark, Estonian Air had obtained the necessary coverage from international insurers.
The situation normalized on the evening of Sept. 28 when the insurance company agreed to provide third party liability insurance of $1 billion, enabling Estonian Air to restart flights with its own fleet of two Boeing 737-500 aircraft and two Fokker 50 aircraft.
Schults expressed relief that a problem which looked like endangering the airline's future had been resolved. "The situation on the aviation market is quite dramatic," he said. "Without this new deal with the insurers I am afraid the government would not have solved our problems in time."
Meanwhile in Lithuania, where the national carrier, Lithuanian Air, is 100 percent state owned, discussions are continuing on how to prop up the airline.
In Latvia, where the state owns a minority stake in Air Baltic, Parliament is to discuss providing guarantees to the company, which continues to operate thanks to the guarantees of its major investor, SAS.
Schults said Estonian Air's hopes of making a profit this year for the first time since its privatization in 1996, this year were now in doubt.
Grounding flights incurs Estonian Air fixed costs of 2 million kroons per day. But continuing business using the two Maersk Air planes had limited losses, said Schults.
The Estonian state is now expected to postpone selling its remaining shares in Estonian Air.
Kuldar Vaarsi, spokesman for the Ministry of Transport and Communications, said that a working group had been looking at further privatization of the company for some time but had not yet made any recommendations to the Cabinet.
Vaarsi said it was senseless fore the state to retain its 34 percent stake in Estonia Air because the Civil Aviation Authority could continue to exercise the necessary controls on Estonia Air.
According to Schults, Cresco Investeerimisgrupp, which currently owns a 17 percent stake in Estonia Air, is expected to bid for more of the company.