Taavi Aas: LOT stake in Nordica to be acquired for less than a million

A Bombardier CRJ900 regional jet in Nordica livery.
A Bombardier CRJ900 regional jet in Nordica livery. Source: Nordica

Minister of Economic Affairs and Instructure Taavi Aas says that Polish airline LOT will give up its stake in Nordica subsidiary Regional Jet and that current calculations suggests the holding could be acquired for less than €1 million, with the final sum to be determined in the course of negotiations. Estonia's €30 million state aid for Nordica should receive the green light from the European Commission in the near future.

The minister also says that initial calculations suggest PPP roadbuilding would be feasible in Estonia, with the cabinet set to make a decision this month. In the interview to Indrek Kiisler, Aas promises Estonia will not construct any more 1+2 economy highway sections on major thoroughfares.

We last spoke on April 27 when you promised Nordica would fly to 12 destinations from Tallinn. It is now the middle of June, the Latvians are flying from Tallinn, while there are no Nordica flights. What happened?

We said Nordica would start flying once borders are opened. This has now happened and the airline will have to go over its plans.

Nordica has presented the government with a new business plan. Will it return to its pre-crisis model? Flying for other airlines and mostly in other countries?

Operating flights outside of Estonia will remain because it is profitable.

Now, we have added the clause that Nordica stands ready to offer flights from Tallinn if necessary. Especially to destinations others are not offering, depending on the number of flights, ticket prices and flight schedules.

The idea behind Nordica's existence is primarily to put pressure on other airlines in the form of it standing ready to launch competing flights.

Does the business plan include criteria that would prompt intervention? For example, that Nordica will launch flights should airBaltic hike the ticket price for its Tallinn-Copenhagen line. How expensive would tickets have to become for something like that to happen?

These decisions are up to Nordica.

The government will not be deciding when lines become profitable or when the loss is small enough for Nordica to afford it.

When will a state aid permit be secured from the European Commission?

The application has been filed and we are staying in touch with Brussels. We hope to get a positive decision in the near future.

Nordica's fleet compares to that of airBaltic. We even have a few more planes than the Latvians. Why has the Latvian government decided to give its airline ten times as much money (€250 million)?

It is very difficult for me to comment on airBaltic's business plan as I have no idea how they were doing before the crisis.

This is not the first time airBaltic is attempting to secure major financing.

In the case of Nordica, those €30 million are necessity-based.

I do not believe the Latvian government gave airBaltic money without taking a good look at the company first. It must be what it needs.

From a bystander's perspective, the Latvians seem to have been quite clever here. They are trying to create a proper financial buffer to be used for competing with other airlines. Should we not revisit how much we're giving Nordica?

Nordica and airBaltic sport two completely different strategies. In addition to having a lot of destinations and selling tickets, their business plan also includes schemes for the purchase and sale of aircraft.

Nordica is concentrating on ACMI leasing and will not be taking the risk of selling tickets. Such a model is profitable. We do not require a lot of destinations and regular cash injections to keep the company afloat.

Estonia's goal is to make money, not spend it.

Taavi Aas. Source: Siim Lõvi /ERR

Former European Commission transport commissioner Siim Kallas has said he would not invest a cent in Nordica. Instead, he would try to secure a stake in a major airline that would promise to fly direct from Tallinn in return. Have you considered it?

We have discussed it, but there is no way being a shareholder in a larger venture could guarantee direct flights.

Tallinn is an out-of-the-way destination that airlines can afford to avoid. Companies make decisions based on business considerations.

I gather there is doubt Nordica will ever start flying from Tallinn. I believe that airBaltic would not have started offering so many destinations from Tallinn and so quickly had they not been aware of Nordica breathing down their necks.

They decided to rely on the Latvian airline in Lithuania, while the result today is that Lithuanians fly almost exclusively through Riga.

What Nordica has going for it is operating profitably while standing ready to bring its aircraft back to Tallinn at a moment's notice. AirBaltic will only be keeping larger aircraft, while it is by no means certain they will not dial back their flights network should seat occupancy fail to bounce back.

In the end, they will be making such a loss that a single plane to Riga will be all they offer from Tallinn.

The Lithuanian government has said it wants to create a virtual airline by copying Nordica's model that would procure flights from operators but sell tickets using a national airline platform. Have you discussed it with your Lithuanian colleagues?

We have not discussed it, I only know what has been covered in the media. But the decision makes sense, it would be a sign to other major airlines, such as airBaltic, that Lithuania is capable of ensuring direct flights. You simply need an ace up your sleeve on the aviation market.

Have Polish LOT said what they will do with their stake in Nordica? Will they sell to the Estonian government?

LOT is not interested in placing additional funds in Nordica and will be pulling out. We will be acquiring LOT's holding. It will likely be a modest sum as it will be based on last year's results.

Nordica did not exactly have a good year. While I would refrain from speculation, we're not talking about millions here. After that, Regional Jet will be an Estonian state company 100 percent.

Could the sum really be under a million?

It is possible. The final sum will become clear during talks. And we cannot rule out the matter ending up in court.

It will not stop Nordica's consolidation?

Unfortunately, consolidation cannot take place before Nordica is fully state-owned.

The people of Tartu are worried that they're being sidelined in terms of transport. Rail Baltic will pass through Pärnu and now, people cannot even take a plane to Tartu. Could Nordica take over the Tartu-Helsinki air link?

It is an interesting idea and one that should be considered.

We cannot fly to Stockholm in the near future because the COVID-19 situation is still serious there. Regarding the Helsinki line, we need to look at available planes.

Indrek Kiisler and Taavi Aas. Source: Siim Lõvi /ERR

Finally, let us talk a little about highways. How far along in its work is the committee tasked with analyzing the feasibility of PPP roadbuilding? The first such road section should be constructed on the Tallinn-Pärnu Highway, near Libatse.

The matter should land on the cabinet's desk in the near future and be approved in June.

The committee's initial findings are encouraging in that the model seems to be feasible in Estonia.

When could construction start?

We can go ahead with the tender if the government greenlights the project. It is a complicated matter as we have not had a public-private partnership construction project of this magnitude before.

We hope to learn from Latvia's experience, things took very long there.

Hopefully, we can launch planning in 2022 or 2023, while there are plenty of loose ends to consider. For instance, it could be necessary to amend legislation.

I was recently driving down a new section of the highway near Kernu and I could not understand why we couldn't have constructed 2+2 lanes there right away. The result seemed underwhelming for such a major roadworks project.

The government has decided to construct 2+2 sections in the future, even though the 1+2 lanes option could still be sensible in some places.

I agree that it makes no sense to build economy options, but it depends on traffic density at the end of the day.

We need to decide what to do with the Puurmani-Pikknurme section of the Tartu Highway that already has two 1+2 sections. We need to decide whether to construct the section in between to have two lanes in either direction or whether that will also use the 1+2 solution.

Was it a mistake to have 1+2 overtaking sections on the Tallinn-Pärnu Highway? It has busy tuck traffic.

Yes and no. We are constructing Rail Baltic to move goods to the railroad. I would not rush to condemn these decisions, even though I'm a car man myself.

Taavi Aas. Source: Siim Lõvi /ERR


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Editor: Marcus Turovski

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