«Since 2012 I have been honoured to work in airBaltic’s management team. Over the course of the past three years this team managed to transform this politically ravaged, ineffectively managed and commercially unsustainable husk into a modern, transparent and financially successful company with a powerful corporate structure. Today airBaltic is the flagship of the country’s strategic compatibility, the strongest brand in Baltic States and the world’s most punctual airline,» – says airBaltic Council member Kaspars Briskens.
«According to the 2015 analysis of Boston Consulting Group, the aviation industry forms around 3% of Latvia’s GDP. Aviation also directly and indirectly secures nearly 40,000 jobs with wages that significantly exceed average indexes around the country. Aviation plays a critical role for Latvia: the country is far away from Europe’s economic centres, we have no direct and fast roads and railways that connect us with Western Countries. With that, airBaltic is Latvia’s only carrier with a vast network of destinations. It is vital for Latvia in terms of travel, EU market connectivity and attraction of tourists,» – Briskens told Delfi.
«This is why it is only sad to see any state investment in the airline is considered wasteful by our society. It is the opposite in reality – those are all investments that contribute to Latvia’s economic development as a result of macroeconomic multiplication factors. Approximately EUR 118 million have been invested in airBaltis since 2012. The airline has since paid back EUR 75 million in revenue and labour tax and State Treasury loan’s interest. Another EUR 40 million have been paid for services provided by other state institutions/companies. With that, the state has recovered its investments in an indirect way. The airline also provides a positive effect on the state budget and welfare,» – explains airBaltic council member.
According to him, when the airline’s ReShape plan was being approved in 2012, not many believed ambitious cost-reduction plans and flight network optimization goals would be reached and that the airline would be able to work with revenue in 2014. However, in spite of seemingly hopeless losses in 2011 and 2012 (EUR 119 million and EUR 31 million), the airline managed to achieve its goals sooner than expected. On top of that, it was done in spite of countless problematic factors, including the restructuring of commitments, European Commission’s investigation and countless litigations.
«Throughout all of these already partially successful processes, the company played the main role – by both involving its own resources and coordinating the work of attracted consultants. We have also managed to protect the airline from political influence, which is something true for most capital enterprises managed by Transport Ministry. There have been failures, yes. Unfortunately, we are unable to offer Latvia’s residents more accessible prices at the moment. Nevertheless, I believe we have managed to adapt to the new market environment quickly enough following the Russian-Ukrainian conflict and the weakening of the East-West flight model.
At the same time, the company’s existence has been threatened by its own negative capital, which reached EUR 183 million in 2012 (around EUR 80 million now). This critical fact was emphasized by auditors in the last four years of airBaltic’s reports. Negative capital not only denies the company access to loans and forces airBaltic to freeze enormous volumes of turnover funds in advance payments and guarantee deposits, but also serves as a major obstacle for the attraction of a strategic investor,» – said Briskens.
He continues: «In order to better understand the current dilemma with airBaltic’s development scenario, it is important to keep in mind the basic principles of EU aviation regulations. EU regulations prohibit member states from investing money in national airlines. One exception are cases when investments are carried out at the same time as investments from a private investor.
It should be said that national airlines of original EU member states had developed with unlimited support from governments, especially in the ‘90s, when EU member states generously wrote off debts and injected fresh investments in the leading national airlines in preparation for the privatization wave. What is allowed to Jupiter is not allowed to bull! Hungary, Cyprus and Estonia’s national airlines have been fined by the European Commission for receiving state support. As a result, those airlines no longer exist.
Over the course of the past four years talks have been carried out with dozens of potential airBaltic investors, ranging from well-known global aviation companies to private investors and specialized aviation investment companies. Litigation and asset arrest, state support investigation, negative capital, negative regional aviation market conjuncture – these are the most common reasons for insufficient interest to invest in airBaltic. Former Transport Minister of Latvia Anrijs Matiss had been informed of these and other matters timely and in detail, both from the board and council of airBaltic and consultants. Considering the minister’s influence, not a single strategic decision was voiced without first coordinating it with him – from the wage of airBaltic’s CEO Martin Gauss to the basic principles of the airline’s business plan.
In addition, Anrijs Matiss knowledge of airBaltic processes was much deeper than that of other involved parties, especially considering his work as state secretary to the Transport Ministry for four years prior to becoming minister. This is why Matiss claims of being back-stabbed and accusations addressed to airBaltic, Transport Ministry’s state secretary, consultants and even the Prime Minister are surreal to say the least. This tactic contrasts with shared confusion of all sides involved in the process in regards to the former minister’s unwillingness to carry and discuss important matters of the airline to the Cabinet of Ministers.
Because of that, the government has not been provided with a healthy discussion or the concept of an aeroholding, which was originally compiled in 2014.
The minister was provided with the offer of the German investor on 2 July 2015, when the minister was presented the structure of the potential deal with all of its possible flaws, as well as money flow predictions and associated risks. I have never hidden my personal criticisms about this project, including because of possible conflicts with the current concept of the Bombardier fleet and because I would rather not witness the loss of positive dynamics of talks held with potential investors in China.
With that, I stand firmly in support of alternatives and consideration of other funding scenarios and assessment of the German investor’s offer and its compliance with commercial and strategic interests. Up to this day I do not agree with Martin Gauss opinion regarding reasons behind the choice of regional fleet and justifications behind it. I have requested the board to carry out a repeated analysis of this scenario and its possible effects on airBaltic’s reputation and passenger loyalty.
It is important to mention here that the council does not have the resources to assess the potential investor’s personality, origin of his money and compliance of his offer to the country’s geopolitical and national security interests. This responsibility falls on the Cabinet of Ministers and other competent services.»