Estonian airline Nordica requests €20 million in state aid

Nordica Group board member Erki Urva.
Nordica Group board member Erki Urva. Source: Ken Mürk/ERR

State-owned Estonian airline Nordica is asking for state aid of over €20 million to shore it up after flights to and from Tallinn Airport evaporated in the wake of the coronavirus pandemic. However, co-owner LOT, a Polish carrier, at present does not want to meet required contributions to boost share capital, something which around half the requested state aid would go towards, meaning the Estonian state may well buy out LOT's stake.

Three companies make up the Nordica Aviation Group, Nordica – which is 49 percent-owned by LOT, Regional Jet, a subsidiary co-owned by Scandinavian carrier SAS, and Transpordi Varahaldus, which owns the aircraft.

The three together have applied for over €20 million in state aid, in addition to funds from the Unemployment Insurance Fund (Töötukassa) employee salary support scheme, which covers 70 percent of salaries for a two-month period up to a maximum of €1,000 per employee, per month, for companies directly hit by the pandemic and its economic effects.

About half the aid, were it to be received, would go on aircraft leasing payments, the other half would boost share capital, ERR reports.

LOT may need buying out

However, since Nordica is 49 percent-owned by Polish airline LOT, the latter should put up half the share capital increase, i.e. €5 million, but it has not pledged to do this yet due to its own problems arising from the coronavirus pandemic and accompanying economic problems.

"We are currently discussing different options within our company, so
I have nothing to give you until the end of this week ," LOT Communications Manager Michal Czernicki told ERR Tuesday afternoon.

Nordic Aviation Group AS, Nordica's parent company, confirms that no assistance from LOT has been forthcoming yet.

"We have not received any assistance from LOT and are not receiving any assistance. After the crisis started, they announced the termination of all their booked flights, citing force majeure, and have given an indication that they will they do not want them to resume until the end of the year," said Erki Urva, Nordic Aviation Group AS board member.

"As to our proposal to jointly increase the share capital of the Regional Jet by bringing it to the level required by law, they (LOT-ed.) have answered in the negative," Urva added.

Ready and willing to reopen Tallinn routes

As to plans for resuming services, Nordica says it would take on routes with the fastest recovery, noting that it is unrealistic to expect flights from Tallinn to be the first to resume.

Latvian carrier AirBaltic has announced that it plans to reopen some routes in May using its newer Airbus planes, but these do not operate between Tallinn and Riga and are likely to link Riga to other destinations.

At the same time, Nordica subsidiary Regional Jet is ready to start flying from Tallinn if necessary too, the company says.

50 percent of KredEx state aid to go to Tallink

As things stand, of the €300 million earmarked as state aid via credit provider KredEx, around half is to go to shipping line and hotels operator Tallink. The remainder will be distributed among other strategically important companies.

Regional Jet has a positive equity at present, after ending last year in profit, but the situation has sharply deteriorated due to the pandemic.

Should LOT stay away from contributing, share capital will fall.

Minister of Economic Affairs and Communications Taavi Aas (Center) says that, under agreements signed, LOT cannot reduce its contribution, so the next step would be to buy the Polish company out.

"LOT is not ready to contribute, meaning according to the shareholders' agreement, their participation will be reviewed, assessed, and accordingly it will have to be bought out," Aas said, according to ERR's online news in Estonian.

This is not likely to be a speedy process, however, Nordica board member Erki Urva said.

"These processes are very lengthy, and due to shareholders' agreements, can take a very, very long time," he said.

SAS also possible new partner

Another option while Nordica awaits a government decision on whether to come up with aid is scandinavian carrier SAS, according to Taavi Aas.

"Our aviation group is very interested in SAS, which wants to cooperate. Regional Jet has already cooperated, which they were very pleased with, and they have confirmed that they want to cooperate in the future, so in fact there is a market."

As to the actual decision, Aas hinted that support may be forthcoming for Nordica.

"First of all, our infrastructure companies are definitely [key]. Shipping and aviation are important for Estonia. And then the bigger companies, bigger taxpayers, and of course one of the criteria [for aid] is if they are an exporting company," Aas said.

Aas also confirmed that he was in favor of supporting Nordica, not least to get flights in and out of Tallinn Airport up again.

"At the moment, we do not have any flights, but in order to start again, our own company could do this the most effectively," Aas said.

In fact, it was for just such situations, following a lack of interest from itnernational carriers in Tallinn Airport during the last economic crisis startgin in 2008, that the company was set up as a state concern.

However, several hurdles need to be jumped before this will happen, including re-recruiting laid-off flight crews and reinstating ticket sales, both of which Nordica is reportedly already working on.

"Nordica is a company which is still actively building its own ticket sales capacity, since so far we have been dependent on LOT in this respect as well. We have already said we would be ready to recommence flying where possible," Erki Urva said.

Nordica subsidiary Regional Jet says it wants to continue with its current business model, I.e. selling air services to other companies without bearing commercial risk itself, a so-called wet leasing approach.

The government is to begin discussing support for Nordica at its regular Thursday meeting this week, but a decision may not be made on the same day, ERR's online news in Estonian reports.

Nordica was founded in September 2015 to replace the previous national carrier, Estonian Air. 

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Editor: Andrew Whyte

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