Latvia, Law and Regulations, Transport

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Diena: Ministry for Transport will propose complicated airBaltic bailout scheme

Irina Alenina, BC, Riga, 18.08.2009.Print version
The newspaper Diena reports today: the Minister for Transport will present today to the Government the complicated scheme for bailing out the national airline Air Baltic Corporation (airBaltic), which sustained unprecedented losses in the last year, writes LETA.

The airline plans to increase its share capital from LVL 0.5 million to LVL 30 million, of which it expects the state to invest over LVL 15 million (the government is the owner of 52.6% of airBaltic shares). It remains unclear as to where the state could obtain this money from.


The Government will be offered to organize a closed issue of airBaltic shares, which would be acquired by another state-owned enterprise, Latvijas Valsts radio un televizijas centrs (Latvian State Radio and Television Center), which had almost LVL 50 million at Parex banka at the beginning of the year. However, regardless of where the government takes the money from, it will be state money, Diena writes.


airBaltic has not yet released the data on its financial performance last year; at the end of 2008 its share capital was negative, at minus LVL 25.27 million, which finance experts consider a threat to the airline's solvency.


Auditors point out that the company's capacity to continue operations depend on its ability to refinance its short-term debt commitments and to restructure operations in order to operate with a profit.


The airline's President Bertolt Flick mentioned disadvantageous fuel purchase contracts as the main reason why airBaltic incurred losses last year.


This past spring airBaltic failed to pay back its loan to SEB bank, with which it is currently holding talks on possible re-financing of the loan.


If the state refuses to invest money in airBaltic, Flick fails to come to an agreement with the creditors and the airline is ruled insolvent, Latvia will be left without a national airline; airports and tourism industry will suffer losses, and the state will receive less income from air traffic services.


On the other hand, if Flick resolves to provide the necessary bailout money for the airline himself, without the involvement of the state, airBaltic could lose the right to fly to the C.I.S. countries, as it is the state that signs bilateral agreements on flights to these countries.


Diena wrote previously that airBaltic concluded year 2008 with LVL 27.8 million in losses. The airline posted LVL 204.8 million in turnover last year, which is 26.7% more than that in 2007, when airBaltic turnover reached LVL 161.59 million.

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