The Estonian aviation sector has never done so well as before the coronavirus outbreak. Back in February, one could still choose between 28 direct destinations flying out of Tallinn. Today, there are only three destinations left. The tourism sector has been hit first and hard. Next to suffer will be international trade. Estonia depends on foreign direct investments to a great degree and investors prefer direct connections. A state aid package is essential for survival. However, helping one or two companies is not enough. Support will be needed across the whole sector in order to -preserve the value chain, head of the Estonian Aviation Cluster Kristo Reinsalu writes.
The collapse of Virgin Australia after the briefest of struggles indicates the world's weakest airlines have little time to secure funds before they succumb to the coronavirus. "In most countries, federal governments have stepped up, in what is an unprecedented crisis for aviation, to help their airlines. Sadly, that has not happened in Australia," wrote billionaire founder Richard Branson after he made a last-ditch appeal for government support for the country's second largest airline.
The International Air Transport Association that represents nearly 300 airlines has said that half face bankruptcy in two to three months without government help. Many carriers have furloughed staff and grounded entire fleets. IATA has warned that 25 million jobs in aviation and related sectors are at risk. According to IATA updated analysis, the COVID-19 crisis will see airline passenger revenues drop by $314 billion in 2020, a 55 percent decline compared to 2019.
Many European airlines spent much of the past two decades asking governments to leave the airline industry. Now, many are begging for help. The Latvian state has pledged €150 million for AirBaltic to ensure air connectivity between Europe and Riga. Italy is close to taking full control of Alitalia, Norway and Portugal plan to do the same for Norwegian Air and TAP Portugal respectively. AirFrance/KLM is requesting aid from the Dutch and French governments. Even Europe´s largest airline, Lufthansa, was assured by the German government that it would not be left to its own devices. "Financial relief for airlines today should be a critical policy measure for governments. Every airline job saved will keep 24 more people employed," said Alexandre de Juniac, IATA's director general and CEO.
Estonian aviation was a rapidly growing sector of the economy
The Estonian aviation sector was seeing record-breaking growth in recent years. In 2019 alone, the number of passengers at Tallinn airport reached 3.27 million. In 2020, a growth of 5 percent was expected. The average value of one added employee in the aviation sector was estimated at €60 000, which is twice as high as the Estonian average. If we assume that every €1 in GDP contributes about 35 cents of tax revenue to the state budget, in 2019 alone, the Estonian aviation sector provided the state budget with more than €300 million in tax revenue.
The situation has changed dramatically today. Air traffic in Estonia has decreased by some 82 percent compared to the same period a year earlier. Overall, global air traffic is expected to decline by 48 percent this year. In April 2019, air traffic controllers from the Estonian Air Navigation Services (EANS) operated on average 668 flights every day, today the number is a mere 120.
Members of the Estonian Aviation Cluster provide around 2,000 high-paying jobs. Based on IATA's 1:24 ratio, the aviation sector has contributed to the creation of 40 000 jobs in the Estonian economy. According to some estimates, 150 different companies are providing services to Tallinn Airport alone. We should also be aware that there are jobs in many sectors of the national economy that will be lost without a functioning aviation industry, including tourism, trade, export-oriented manufacturing and services etc.
If the negative scenario is allowed to manifest and the state refuses to aid the Estonian aviation sector, a total of 500 jobs will be lost in 2020 alone. If this happens, Estonia will face the Lithuanian scenario – national carrier Fly LAL became insolvent and filed for bankruptcy in early 2009. Losing its national airline, Lithuania suffered serious damage to links between the capital city Vilnius and the rest of the world.
Aviation is a special sector
We have every right to support the aviation sector by all possible means, including through European Commission (EC) and national state aid today. The rules are different in aviation and it would not be illegal to provide larger amounts of state aid in the current situation for aviation companies. Thus, creation of a state aid package is critical for the development of the aviation sector and ensuring the country´s competitiveness:
- Aid in the form of direct grants or equity. State-owned airline Nordica has asked an injection from the state to be prepared to operate flights out of Tallinn once the coronavirus crisis that has completely cut Estonia off from Europe ends.
- Aid to restart air traffic at Tallinn airport. We have proposed offering airlines a discount of 75 percent on aviation and 30 percent on handling and infrastructure fees between June 2020 and March 2021.
- Short-term export credit insurance to free the capital of distressed companies with a state guarantee. Even the world's largest airlines have extended the deadlines for paying bills.
- Aid in the form of wage subsidies for employees to avoid layoffs during the COVID-19 outbreak. Laying off and then rehiring high-paid specialists involved in the Estonian aviation sector could prove to be time-consuming and very costly.
- Aid in the form of deferrals of tax and/or of social security contributions to reduce the liquidity constraints of aviation companies and preserve employment.
Before the outbreak of the Corona-19 virus, the Estonian aviation sector was one of the fastest growing economic sectors in Estonia: high-paid jobs, considerable tax revenues for the State Treasury, twice the Estonian average value added per employee, export-intensive services. Today, however, we are in a new situation where the sector's future stakes no longer depend on our own actions. We strongly believe that it is not enough to support one or two companies because a lot of companies are intertwined and interdependent in the aviation value chain. Therefore, it is necessary to draw a more detailed and comprehensive plan for state aid measures as other countries are doing.
DID YOU KNOW?
The average income of a graduate student at the Estonian Aviation Academy is the highest among all Estonian higher education institutions' graduates.
The largest-ever national airline Nordica is ready to re-establish airline connections shortly after the current coronavirus restrictions will be relaxed.
Magnetic MRO has been Estonia's company of the year on several occasions and is a strong export-oriented service provider servicing almost 100 aircraft a year in its hangars.
The Estonian Aviation Cluster, established in 2019, unites 15 ambitious member-companies across the aviation value chain from airport to multiple airlines, maintenance, IT, logistics and transport.
Editor: Marcus Turovski