Attracting an investor is currently the main challenge, Ozolins said. “We have been working very productively this year, we have hired the international company Lazard Freres which has been working hard to identify airBaltics’ potential strategic partners that might ensure the company’s development… We have to keep in mind, however, that under EU regulation, government investments are government support. Consequently, government support is incompatible with the company’s development, so we need to look for a strategic partner so that the company could develop in accordance with market principles. In fact, it is difficult for the government to be an effective shareholder because the law does not give it such investment freedom as private shareholders,” Ozolins said.
The Transport Ministry’s representative indicated at the same time that not continuing development is not an option for the company.
“Aviation is a business where nothing happens if you stay put. As we all know, the global aviation market is in a rather poor state, with many well-known companies struggling with difficulties unlike airBaltic, which has been working phenomenally. This year has clearly been successful for airBaltic, and our cautious prognosis is that the next year will be even better. At the same time, we see what is happening in Europe with carriers like Monarch, Air Berlin and Alitalia. We also see what is happening with Etihad Airways, which few years back was investing aggressively but is not doing this anymore. We also see other players, such as companies from China and also from Europe, eager to expand into the market. British Airways, KLM and Lufthansa are trying to strengthen their foothold, so it is very important for airBaltic as well,” Ozolins said.
The government has ordered the Transport Ministry to find a strategic investor for airBaltic by November 3.
“We have held consultations and negotiations with almost 95 percent of the world’s airlines. There have also been talks with various investment funds. There are currently several proposals on the table which are being analyzed. To us, the most important thing is to identify the result of possible synergy, the strategic partner’s perspective on the company’s future development. As I said, it is important to us that connectivity of Latvia and the Baltics remains at least the same as in 2016 and Riga airport remains the airline’s main hub. So, we have several proposals, they are concrete proposals already, not just theoretical suggestions,” Ozolins said, adding that the ministry might inform the government of its choice very soon.
Asked if the government still wants to keep a controlling stake in airBaltic, the Transport Ministry’s state secretary said that there had not been such a requirement, the government just wants to remain able to participate in taking strategic decisions. Ozolins indicated that the ministry does not rule out full divestiture as well.
Asked if any of the proposals currently analyzed by the Transport Ministry includes the full privatization option, Ozolins said that this is an option.
“Theoretically, there is such an option. If we see an investor who would be able meet our requirements after acquiring all government shares, why not? It would only facilitate the company’s development and would substantially reduce the risk of taxpayers’ money being used for this purpose,” the ministry representative said.
As reported, Horizon 2021, the business plan of Latvian national carrier airBaltic, provides for attraction of additional capital worth EUR 50 million, but the airline will not request further investments from the state.
The Latvian government has resolved to find a strategic investor by the end of 2017. International financial consultancy Lazard Freres has been hired to look for the investor.
In May last year, airBaltic share capital was increased to EUR 256.473 million. According to an agreement signed by the Latvian government and German investor Ralf Montag Girmes, the investor made an investment worth EUR 52 million in airBaltic, while the state invested EUR 80 million, capitalizing the loan from the Treasury. As a result, the Latvian state held 80 percent shares in airBaltic and Montag Girmes had 20 percent through company Aircraft Leasing 1.
In April this year, Danish businessman Lars Thuesen became the sole owner of Aircraft Leasing 1, thus becoming an indirect holder of a 20 percent stake in airBaltic.
airBaltic posted EUR 1.2 million in profit last year and achieved EUR 286 million in turnover.
airBaltic serves around 60 destinations from its home base in Riga, Latvia.