European Commission green lights Nordica coronavirus bailout

A turboprop aircraft in Nordica livery.
A turboprop aircraft in Nordica livery. Source: Anna Zvereva/Creative Commons

The European Commission has given the go ahead to the Estonian government's €30-million bailout packaged for state-owned airline Nordica. A 2015 commission decision had declared a bailout package for Nordica's predecessor, Estonian Air, illegal state aid, but this was not found to be the case with the Nordica program, issued in response to economic problems in the wake of the COVID-19 pandemic.

The agreement comes with conditions, including that directors not receive bonuses until at least 75 percent of recapitalization is reached.

Margrethe Vestager, commission Vice-President responsible for competition policy, said that the outbreak of the coronavirus had severely damaged the aviation sector in Estonia, and that the company had suffered heavy losses as a result. 

The commission estimates that Nordica's losses are so great that the company could go bankrupt by the end of the year.

"In order for Nordica to be able to continue operating, it can get a capital injection and a subsidized loan, without undue distortions of competition," Vestager said.

Estonia opted to increase Nordica's share capital by €22 million in spring, as well as to provide the company with a subsidized interest loan of €8 million, as the coronavirus pandemic's effects became known, bringing the total to €30 million.

Nordica's predecessor, Estonian Air, had to cease operations in 2015 after a European Commission found that it had been granted illegal state aid.

The current state Nordica scheme was approved under the Temporary Framework for State Aid, itself issued in response to the pandemic, with which it complies as the bailout does not go beyond that needed to restore Nordica's pre-pandemic structure and viability.

The European Commission granted Estonia permission to issue state aid up to €20 million for Baltic ferry passenger lines whose business was harmed by the pandemic.

Conditions with the Nordica plan include that it may not pay non-mandatory interest on bonds or other third party financial instruments, until at least 75 percent recapitalization has been achieved.

Nordica may also not pay bonuses to directors, or acquire more than 10 percent shares in companies competing in the same field, during that time.

Increasing Nordica's share capital requires the merger of Nordic Aviation Group AS, Regional Jet OÜ and Transpordi Varahaldus OÜ, plus the company must submit a plan for resuming flights from Tallinn Airport.

The commission found measures are necessary, appropriate and proportionate, and that the €8 million loan component covers liquidity needs in the near future, that interest rates on the loans are in line with reference rates and credit risk margins.

The Estonian state also wants to purchase the 49 percent stake Polish airline LOT holds in Nordica subsidiary Regional Jet, with indications from economic affairs minister Taavi Aas (Center) being that this would cost under one million euros.

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Editor: Andrew Whyte

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