Airline In Over Its Head With Deposit on Leased Planes
A legal foul-up with the purchase of Bombardier airplanes could cost Estonian Air and the state big-time.
Eesti Päevaleht, which has been reporting on the parliamentary committee hearings on the possible futures of the troubled national carrier, has divulged new information on a 60 million euro sum that has come up repeatedly in connection with the airline.
At the hearings, there was talk that the company could require a 60 million euro cash injection. Company officials had been vague on the exact nature of the sum, but the newspaper reported today that the truth is plainly laid out in public documents and related to the scheme for financing the aircraft.
Rather than a straight deal between Estonia (which owns 90 percent of the airline) and Canada, an offshore company was established.
"In 2011, Estonian shareholders voted to set up an ad hoc entity, EA Jet Leasing Ltd, in the Cayman Islands to assist in the purchase of three Bombardier aircraft, which were delivered the same year and financed by Export Development Canada (EDC),” an Estonian Air report states, referring to the arrangement as the most cost-effective one.
Although EA Jet Leasing Ltd is Estonian-owned, the EDC calls the shots. Estonian Air's Bombardier airplanes are controlled by the offshore firm, which leases them to Estonian Air under a 12-year, 45-million-euro leasing agreement signed for the aircraft.
The complication is that in January 2011 Estonian Air signed an additional guarantee securing EA Jet Leasing's 60 million euro debt to EDC.
A lease itself could easily be unloaded to the other company, but the 60 million euro guarantee is more complicated.
If Estonian Air were dissolved - which is a possibility that has reportedly been discussed - it would have to return the planes to EA Jet Leasing, which could find another operator for the planes. But that would leave Estonian Air holding the bag. In other words, the government could need to pony up 60 million euros if it wanted to exit the business.