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Special audit: Poor management behind Nordica's current plight

A Nordica Bombardier CRJ900 taking off from Tallinn.
A Nordica Bombardier CRJ900 taking off from Tallinn. Source: Ken Mürk/ERR

A special audit of state-owned airline Nordica which was commissioned by the Ministry of Climate and conducted by big four consultancy firm EY, together with Baltic law firm Fort, found that poor management is behind the company's current difficulties.

The final report arising from the special audit found that the company was not well managed. Minister of Climate Kristen Michal (Reform) said via a press release: "The firm's management took a direction toward expansion, but the risks related to various contracts and projects were not sufficiently evaluated. 

"New investments were also not analyzed sufficiently. The content, limitations and risks arising from contracts concluded on certain projects were only analyzed after the contract was signed and problems appeared," Michal added.

"While Nordica's situation continues to be difficult, the new management has been able to identify all costs and risks and boost the company's efficiency. This permits us to hold substantial negotiations with interested companies in respect of Nordica's privatization," the minister went on.

The final report revealed that, among other things, the Nordica board had not provided the supervisory board with sufficiently comprehensive and objective information on the impact of the decisions on the company on its own initiative.

The supervisory board, in turn, had not requested sufficient additional information, the report found.

While the service contracts as stated in the budget were reported as having been profitable, plus decisions to start the contracts were based on the owner's expected profitability goals, in actuality, the planned investments, new contracts and projects had not been analyzed with sufficient depth, the report found, meaning realized risks could not be identified and taken into account.

Cost-effectiveness analyses were based on overly optimistic assumptions, the report found. Therefore, in the opinion of those conducting the special audit, the contracts concluded in the period under review were not fully in line with the owner's (ie. the Estonian state's) expectations.

The special audit also noted that there were cases where the supervisory board required the management board to provide more detailed financial analysis, but approved the implementation of the project or the conclusion of the contract before the management board provided the data the supervisory board had requested.*

When circumstances changed during the course of a project, the impact of these changes on the company and the project in question's profitability was mostly not discussed by the supervisory board, the audit also found.

The special audit took in management decisions made in the period January 1, 2020, to July 27, 2023.

The comprehensive results of this audit will also be presented to the government, the National Audit Office (Riigikontroll), the Prosecutor's Office, plus access to it on the part of Riigikogu MPs will also be guaranteed. The Ministry of Climate will also present the audit results to the nomination committee, which oversees appointments to state and public sector bodies, and will analyze what needs to be improved in the management of state-owned enterprises more broadly, to prevent similar situations from arising in the future.

*State and public sector bodies in Estonia have a management board (Juhtkond ) along with an independent supervisory board (Nõukogu), the latter often containing representatives of the elected political parties.

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Editor: Huko Aaspõllu, Andrew Whyte

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