At the same time, the Estonian government says that Nordica's business model of leasing smaller planes such as ATR 72-600 turboprop planes and Bombardier CRJ900s, as well as running other airlines' routes for them, often with smaller aircraft as well, is a business model which will weather the coronavirus storm.

Details of implementing the state aid granted earlier this year also have to be factored in; a loan of €8 million has not, and does not need to be until year-end, drawn down yet, and issuing new shares to boost share capital does not need to be completed until next June.

€30 million state aid already

Nordica's equity was estimated at just under €19.6 million in the red in July, where it had been nearly €18.9 million in the black on December 31 2019.

The airline, which received the green-light for state aid of €30 million this August, after getting the go-ahead from the European Commission, will still have run at a loss of €23 million for 2020, with its survival going forward likely depending on additional funding injections and demand from other airlines for the use of its air services.

The primary example of the latter is Regional Jet/Xfly, which provides flight services for Scandinavian airline SAS (i.e. crews and services the planes, which remain in the SAS livery, for them – ed.), including a planned Tallinn-Stockholm route likely on ice due to rising coronavirus rates, and operate domestic routes in Sweden.

At the same time, since Nordica doesn't own any aircraft itself, and it has little else in the way of collateral, getting any kind of loan other than another bailout from the state would prove difficult. SEB refused the airline a loan in April.

Fate of Tallinn Airport could be interlinked with Nordica's

The European Commission noted that air connections even before the coronavirus pandemic struck were below European average in Estonia, partly due to the country's location and size, with Nordica, which was founded in 2015, having a 20 percent share of routes operated from Tallinn

The government, which as noted recently granted the airline a bailout, sees the survival of Nordica and that of Tallinn Airport as inter-related, with the commission itself noting that if Nordica stopped operations, the length of time (6-12 months) it would take to find alternative carriers to service the discontinued routes would lead to Tallinn Airport sinking even further off the radar.

Latvian part-state-owned airline airBaltic also operates from Tallinn.

Nordica in effect replaced Estonian Air, the state-owned carrier which had gone into liquidation after being ordered to pay back state aid by the European Commission, which it was unable to do, in 2015.

Expert: On paper, Nordica should close down, in practice, bailouts part of a global trend

Toomas Peterson, a former head of the country's aviation administration (Lennuamet) and of Estonian Air, told that in cold equity terms, Nordica should close down, but given the trend worldwide for airline bailouts, it should conversely be kept alive, as it should not be taken as read that airBaltic would continue to fly from Tallinn either.

Peterson said the state had two options facing it if it wanted to keep Nordica airborne. The first of these was to use: "the money received from the subcontracting offer from Nordica's subsidiary Regional Jet to ensure the necessary air connections from Tallinn. Or alternatively, a low-cost airline established by the state, which flies only from Tallinn, as it were on a point-to-point basis, which the state would pay about €15 million per annum to keep going"

Peterson said that Xfly might also be key to recovery when the situation normalizes; it has already 10 percent of the European market in providing air services to existing airlines.

Ultimately, Peterson said, the situation was at somewhat of an impasse, where noone wanted to speak first.

"The state must take this risk to help Nordica. However, I understand that neither politicians nor officials dare to take responsibility and make a funding decision," he said.

Effects of the pandemic

The Estonian government assessed Nordica's equity at minus €19,553,000 in July, and Nordica itself estimates it will have lost €57 million in potential revenues due to the pandemic, with a negative cashflow of €23 million.

Nordidca was refused a loan by Swedish-owned SEB in April, with the latter citing uncertainty. The airline does not own any planes of its own, which could be used as collateral.

This makes state aid the only realistic option, if the airline is still to exist in 2021.

Nordica makes up 3.5 percent of Estonia's GDP

In 2019, before the pandemic broke, Nordica had a turnover reported at £100 million, paid €15 million to state coffers in taxes, including €1.9 million in labor tax.

The whole firm accounts for 3.5 percent of Estonian's gross domestic product (GDP), approximately.

It's staff levels fell from 624 people before the pandemic to 385 afterwards; its salary levels are from 1.5 to four times higher than the national average, making it an attractive place to work up to now.

It is the largest Estonian aviation firm, and also supports, by its operations, the work of Tallinn Airport as noted, aircraft maintenance provider Magnetic MRO, Transpordi Varahaldus OÜ (which leases aircraft for the firm) and various service and training companies.

Regional Jet/Xfly provides aircraft, crew, maintenance, insurance (ACMI) services to major airlines, including SAS and Polish airline LOT, though the latter has terminated its agreement (LOT had been a 49 percent stakeholder in Regional Jet; the value of that stake when coming to buy it out has been the subject of government-level discussions – ed.).

SAS' Nordica subsidiary-run fleet is only five aircraft, down from the planned 15 pre-pandemic.

Nordica, government: Business model inherently flexible and can weather COVID-19 storm

At a time when passenger numbers are substantially down on year (in May, passenger throughflow at Tallinn Airport was just 3.5 percent of that of the same month in 2019), or at the height of the pandemic in spring, non-existent, Nordica has still had to pay for its aircraft leases as well as employees – either those kept on or those receiving redundancy packages.

At the same time, the Estonian government says that the outsourcing model and smaller, flexible airlines is still the way forward, with SAS' five current routes operated likely to remain in place and talks planned for providing future ACMI services to local airlines in Germany, Italy, Austria and even Vietnam.

The business model is sound, the government says, as evidenced by the Regional Jet Stockholm-Gällivare route in Sweden, a significant source of income, and Nordica will be able to recover to roughly pre-pandemic levels by 2022, beating the International Air Transport Association's (IATA) estimate of when that will occur by one year.

Implementing last round of state aid still ongoing

The state aid granted earlier this year increased Nordica's share capital by €22 million and gave a subsidized loan of €8 million. The share capital increase must be completed by June next year and the loan drawn down by the end of this year.

Boosting the share capital involves issuing 3 million extra shares, dubbed "coronavirus shares", and comes with strings attached in that the state will ensure that the money is not used to undercut other airlines and/or to enter other markets – in fact the company cannot increase its share in some routes by more than 10 percent until at least 75 percent of funds invested in share capital increases has been returned.

Additionally, executive salaries may not be increased by more than they were on December 31 2019.

This would make Nordica's equity in the black, at around €1.2 million, with a debt-to-equity ratio of 3.99, rising to 5.85 next year.

Nordica chief Erki Urva said last month he thought the €30 million state aid would be sufficient for survival.

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