SAS increases its stake in Latvian airline

RIGA - The Scandinavian Airline System has increased to 47.2 percent its stake in the Latvian national airline Air Baltic, its executives announced at a press conference on Oct. 30.

"This development clearly marks our willingness to take part in the future development of the airline," said SAS Vice President Lars Lindgren.

SAS bought 6.5 percent stakes from two funds, Sweden's Swedfund and the Danish Investment Fund for Central and Eastern Europe, in accordance with an agreement made at the time of Air Baltic's founding in 1995.

SAS paid a total of around $9 million for the stakes.

The Latvian state meanwhile is keeping its 52.6 percent stake.

Lindgren rejected reports by Swedish business newspaper Finanstidningen that the company planned to either acquire a majority stake in Air Baltic or buy the company outright.

"This is not and cannot be our intention because everything depends on the largest shareholder, the Latvian state's willingness to dispose of its 52 percent stake," said Lindgren. "We have no information about Latvia being ready to do so. If such an opportunity comes up, SAS may think it over."

Arnis Muiznieks, head of aviation at Latvia's Transportation Ministry, earlier told the Latvian newspaper Dienas Bizness that the Latvian state was unready to reduce its ownership of Air Baltic.

"Until Latvia joins the EU, to give up 52 percent in the airline would mean losing rights to fly on all routes under current agreements," said Muiznieks "There may be some countries which would show some goodwill and let the airline keep those rights, but most would withdraw them."

Lindgren said that SAS and Air Baltic are doing relatively well at a time of deep crisis in the aviation industry. "We are reducing staff, but we are not laying off employees. We are reducing our fleet, like all other major airlines, but our strategy regarding Latvia's aviation market remains unchanged."

Far from reducing its flights, Air Baltic is actually increasing the frequency of its flights to Helsinki, Tallinn and Vilnius, making them twice daily, although its Budapest service has been terminated. "We are offering more simplified in-flight services and very competitive prices to all three destinations," said Air Baltic President Jens Helmo Larsen. "We believe this concept will be successful and will boost business between the four countries."

Last year Air Baltic made a loss of 1.5 million lats ($2.42 million) although its operating profit was 77,000 lats. In 1999 the airline's operating loss was 4.1 million lats and total losses were 5 million lats.

Nevertheless, the company hopes to close this year without a loss, achieving a turnover of 27 million lats. "Air Baltic is today standing on its own feet," Lindgren said.

Lindgren was guarded in reacting to Danish media reports that in a bid to strengthen its position in the Baltic states SAS wishes to buy Maersk Air's holding in Estonian Air and to participate in the privatization of Lithuania's national airline, Lietuvos Avialinijos.

Regarding Maersk's stake in Estonian Air, he said, "We haven't seen a seller, so obviously there's no buyer - I would call it a remote question."

The Danish financial newspaper Boersen recently quoted company executives as saying that SAS's goal is a home market of 100 million people. This, it says, is the critical size which will ensure the future viability of intercontinental flights from Copenhagen. It represents SAS's only chance of remaining an independent actor in the European aviation sector, said the newspaper.

"We're keen to bolster our position on the Baltic market," SAS head Joergen Lindegaard told the paper. "At the moment the market is small, but it's growing and will be even bigger in ten years. If Danish Maersk Air should wish a different division, we'd be interested, but I wouldn't care to speculate on this subject at the moment."

The Estonian government recently decided not to sell the state's 34 percent holding in Estonian Air due to the current industry crisis.

The Danish airline Maersk Air acquired 66 percent of Estonian Air shares together with Balti Cresco Investeerimisgrupp for 59.4 million kroons ($3.4 million) in 1996.

In 1999, Estonian Air made a loss of 56 million kroons. Last year the loss was reduced to 9.8 million kroons and this year the company is planning to make a profit.

However, the Lithuanian government's hopes of seeing SAS among the bidders for Lietuvos Avialinijos may be in vain.

"We can't compare the Latvian situation with the Lithuanian situation, and we have no plans to invest in Lithuanian Airlines," Lindgren said. He stressed that not investing in Lithuania did not mean SAS would not be an actor in the Lithuanian market. "We have made our priority Latvia."

For the time, consolidation in the European airline industry will be hindered by European Union regulators, he said. "There is a trend of consolidation in Europe and it is likely you'll see an acceleration as a consequence of negative results. But traffic right regulations have not been solved and until that happens consolidation will be limited."