Interview: Estonian Air as Loss Leader for an Internationalized Economy ({{commentsTotal}})

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Minister of Economic Affairs and Communications Juhan Parts gave an interview Thursday night on ETV's "Kahekõne" (Dialogue) that included a long exchange on the topic of Estonian Air. 

The government has now decided to pay out the last installment of the loan to Estonian Air. Will it stay that way? Is that the whole sum or is this a temporary solution?

It is temporary. We have been dealing with Estonian Air's restructuring since the moment three years ago when the state had a choice - to take over the company or take the same road as Lithuania. Our decision then was to opt for a takeover, because an airline's impact on the economy is very noteworthy. I don't think I need to reach for evidence to prove that at this juncture.

It must be admitted that the three years of work... have not laid a sturdy foundation.

It can also be said that the three years has been a very long time for finding some kind of solution for Estonian Air. Three years have been wasted - that can be said as well.

I wouldn't say that... The situation around us is very dynamic. Even if you were to ask me, you've done this and that; is it now guaranteed that Estonian Air is on solid ground for posterity? I would say 'no.'

Look at what is happening in the European aviation market. Look at what is happening in Tallinn Airport: some flights are being opened while others are being closed. Some are cheaper while others are more expensive... This is Europe's single market.

Even so, what should the state have done differently when it took over Estonian Air? The state acquired some kind of Bombardier planes that SAS had decided to buy, and the debts that SAS had acquired were passed on to the state.

Not to the state; they were inherited by the company!

Well, OK, but the state took over a company that was saddled by some pointless aircraft. That was a mistake right there. The supervisory board was already then not thinking.

That's not quite it.

From the government's point of view, an airline is not just the pride of the nation, it has a practical utilitarianism about it. Considering our small market, we have no reason to be very sure that the market will satisfy our growing needs for air connections.

In other words, the Lithuanian parallel is pretty good. If you want to see what would have happened if the Estonian government had not made the decision in 2009 and taken over the airline, I recommend you go to Vilnius airport and look at their flight schedule. Very many Lithuanians take flights with a stopover Tallinn so they can go to the destination in the morning and back to Lithuania in the evening - this is a normal connection in addition to the low-cost carriers.

Sure, mistakes have been made in the interim. It's easy to be smart in hindsight. But I am focusing on the current situation and the fact that we have to keep on going forward. I can't say [that] if I had been smart, I would have done this in 2009 but acted another way in 2010. In the big scheme of things, everyone who has worked for the company has in good faith tried to solve complicated problems.

But talking purely in money terms - how much money has the airline asked from the state during the whole of this period?

I would answer like this - how much has it given us back? Even if there have been losses - it has been making a loss on paper since 2006, if I'm not mistaken - but Siim Kallas, the EU commissioner for transport, said a week ago that the company's impact on the economy is 300 million euros.

Well, that is quite sizable, but still…

But it is significant!

…let's talk about the money...

There is no other way to look at it!

…that the Estonian state has used to keep Estonian Air operating. How much are we talking about, how many millions?

I might not be able to say the exact figure off the top of my head. If we look at the numbers with the influences that they have, the Economic Affairs Minister and Cabinet can say that even if the company makes a loss, when it should be making a profit (and there's nothing to do about it, the laws of the market are harsh) we can say look, it has given the economy back much more if it exists. A company can't think like that!

Sixty million euros - would you agree with that?

I think it is less. But do you know how much we pay from the state budget on public transport within Estonia (county bus lines, [... etc.])? Over 60 million euros…

If we make these kinds of comparisons, air connections are really more of an investment. The brakes on the Estonian economy today continue to be the lack of connections. Our economy is internationalizing very rapidly and we are simply not so attractive without flight connections.

Maybe we should think like Edgar Savisaar and just introduce free air transport?

Come on now. I don't even know what to say to such a thing. Invite Savisaar into the studio and discuss it with him. I'm not taking part in that.
 
What I mean is that there's no difference in how the state pays the money. Where is the limit, the maximum amount that will be put up in the interests of Estonian Air?

The state has not paid the money as a subsidy or state aid. We have made all the decisions (also with SAS) knowing that they would be profitable investments in light of the management's plans.

Le's take the last loan, whose interest is 15 percent. … Everything depends on whether the company is able to restructure itself and whether the economic and legal considerations are fulfilled. In that case, these conditions would also include repayment of the loan. It's elementary.  

So what's going on with Brussels? Things got so bad that you decided to lend money to Estonian Air regardless of Brussels. You didn't wait for the EC's position.

In such cases it's possible to give a short-term loan, as long as you give notice that the company needs restructuring and then Brussels investigates the matter. That is what they are doing now.

Yet competition commissioner Joaquín Almunia said that Estonian government hastiness in rushing to the aid of Estonian Air could spoil the Estonian bid for state aid permission.

I can't agree with that. As to what pertains to the company, Brussels and the Estonian government, this will be a serious dialogue. The company and the Cabinet have very strong arguments in light of all aviation and state aid rules. There are many precedents on how to resolve specific questions.

How much time might it take?

Practice shows that depending on the circumstances, from six months to two years.

That may be too late for Estonian Air.

It's a difficult dilemma. Let's suppose the restructuring plan is at a point where it is satisfactory to us and already being implemented. Then it will be one of the hardest dilemmas for us.

When will Estonian Air go bankrupt, Mr. Parts?

As long as I am minister, I will work to ensure that Estonia has decent flight connections. I am not taking the risk of letting the market dictate everything.

You're willing to step down if things go sour with Estonian Air?

If my resignation would make Estonian Air extremely profitable, I would be glad to do that. I think that right now we need to work and find a solution. My possible resignation is not the most important thing here, I think.

One interesting idea in today's articles was that the following pitch could be made to Brussels: Estonian Air is a "provincial" airline, Tallinn is in a special situation, far from the major hubs, and needs special treatment.

Yes, that's certainly a possible argument. A certain regionalism can be an argument but if we look at competition and are very orthodox pro-market people, it is not a very strong argument. The key for Estonian Air lies in the company's own restructuring plans. If the company is able to manage itself and perform the necessary restructuring, that is the best argument for the monster you call "Brussels."



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