Minister orders special audit over flash Nordica loss

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A Nordica plane at Tallinn Airport.
A Nordica plane at Tallinn Airport. Source: Ken Mürk/ERR

Minister of Climate Kristen Michal has ordered the supervisory board of state-owned airline Nordica to carry out a special audit after the company closed the first half-year with a loss of €7.2 million.

"The special audit follows the situation today where Nordica's financials have taken a nose dive in a very short time," Michal said.

"The situation is complicated on the aviation market. Deliveries of leased aircraft are late, staff and equipment are in short supply, planes' service times have grown and every input has become more expensive. All of these circumstances coinciding have left Nordica with a loss," said David O'Brock, the airline's supervisory board chair.

Preliminary data puts the consolidated turnover and loss of Nordic Aviation Group, made up of Nordica and Xfly, for the first six months of the year at €54.9 million and €7.2 million respectively.

Nordica has decided to bring in international consultation firm Knighthood Global to try and return to profit. Partner at the firm Camiel Eurlings has been a member of Nordica's supervisory board for years.

O'Brock said that the contract duration is up to six months, during which time all of the company's activities and cost structure will be revised.

The supervisory board head said that the difficult situation follows unfortunate external circumstances coinciding with the airline's overly optimistic expansion strategy picked last year.

He said at a press conference on Tuesday that while Nordica made an anticipated loss in the first quarter of 2023, it was expected to rapidly return to profit in May, which did not happen. Instead, the first half-year results, presented to the supervisory board on July 13, were extremely poor.

CEO resigns a day before special audit ordered

Nordica expects the firm to come up with a set of proposals for the future by the end of September. "We are expecting visible results in the next few months, including stable positive cash flow," David O'Brock said.

Recent Nordica CEO Jan Palmer sent the supervisory board his letter of resignation last week, which the latter satisfied on July 26. Michal ordered the supervisory board to carry out a special audit the very next day.

Remco Althuis, who has previously held executive positions at KLM, Etihad Airways and Air Seychelles and will be heading Nordica's team of consultants from August 1, was appointed the new interim CEO.

Nordica must hold a tender to find an auditor as quickly as possible and has promised to do so by the end of August. The first preliminary report of the special audit is due by the end of September. The audit's final report needs to be completed inside three months of the signing of the contract, or by late November at the latest.

Sander Salmu, the Ministry of Climate's undersecretary for transport, said that the special audit will go back to 2020, or the period before Covid. He added that special attention will be paid to the fact Nordica received state aid in the summer of 2020, one of the conditions of which was privatization inside seven years or having to return the money.

Nordic Aviation Group made a net profit of €1.51 million last year, with sales revenue amounting to €90.6 million.

ERR did not manage to get hold of Jan Palmer for comment Tuesday morning.

Climate minister will not give up plan to privatize Nordica

The government has promised to privatize several state companies, which fate is also in store for Nordica. Michal has previously said that the consolidation of group companies necessary for privatization is planned for this year, after which the government should make the decision [to privatize the airline].

Sander Salmu also said that work to consolidate Nordica and Xfly continues and the aim of privatizing Nordica has not been dropped.

New interim CEO Remco Althuis, who also heads the management board of Knighthood Global, said that Nordica's goal is to remain stable and get to the bottom of how the current situation developed.

Althuis has experience delivering struggling airlines and will be paid €9,800 a month as Nordica CEO.

The consultation firm's services will cost Nordica €190,000 per month, including the executive manager, a team of three or four people and their support staff. "It is a large team hired for a period of up to six months to introduce change in the company," Salmu said.


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Editor: Marcus Turovski

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