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Michal: Nordica audit shows how a company should not be managed

Nordica jet taxiiing on the tarmac at Tallinn Airport.
Nordica jet taxiiing on the tarmac at Tallinn Airport. Source: Ken Mürk/ERR

State-owned airline Nordica's special audit shows how a company should not be managed and there is a possibility a possible conflict of interest will be investigated, Minister for Climate Kristen Michal (Reform) said on Monday. EKRE Chairman Martin Helme said there could be grounds for both a civil and a criminal case.

The special audit, 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.

Michal told ERR said the report indicates decisions were not fully thought through or were handled carelessly.

"For example, an expansion that has left former core customers neglected or in need of care. These expansions and the various activities were not being thought through and budgeted for in real time with constant feedback between the board and the council, so that is where these problems have started," he said.

"I think the best way for the Estonian state to learn from this story is, first of all, how not to run a business, how to run a business better," the minister added.

Kristen Michal. Source: Priit Mürk/ERR

Riigkogu Economic Affairs Committee Chairman Priit Lomp (SDE) said the problems found by the special inspection are worrisome. 

"If there is still a discussion that the report of the special committee should or could reach the prosecution's desk, it does not speak well for the due diligence of the company," he said.

Michal said that whether to start the procedure is up to the prosecutor's office. "Whether there have been various conflicts of interest that could or should give rise to proceedings. The prosecutor's office makes its own decisions, the government cannot predict. That is why this thorough special audit has been carried out."

As an example, Lomp highlighted that Nordica entered into contracts that were expected to earn a few hundred thousand euros in revenue, but due to the failure, a loss of a few million euros was instead earned. "There were situations where over-optimistic contract outcomes were offered and, alongside this, there was no way of assessing the risks," he said.

Priit Lomp Source: Ken Mürk/ERR

Riigikogu member Martin Helme (EKRE) called the report's findings quite depressing. 

"It is quite clear that our national airline was run like a corner bakery – let's just see how it goes. There has been no proper financial analysis of the business plans, no risk analysis, the board of directors did not go to the board of directors promptly when there were any changes in the business plan; the board of directors did not take an interest in what the financial situation was," Helme said.

Speaking about a possible criminal case, Helme said he had not yet read the full report, but based on the summary, it could become one.

"Secondly, whether there is civil liability, i.e. under the Commercial Code, even if no offense has been committed, there has been a clear and flagrant breach of the duty of care. The criminal case also relates to the fact that it has been established that a member of the board of directors had a conflict of interest, that he was involved, so to speak, on both sides of the business," Helme said.

Martin Helme Source: Ken Mürk/ERR

The company is now in the process of being privatized. Michal said there are currently several non-binding offers. He added the privatization process could be reached in early March.

"When the privatization advisor goes through all these [offers], we will go to the Cabinet and discuss it. The best offer, whatever the government thinks is good, will go ahead. Hopefully it will come to a binding offer and then privatization, that would be the best possible course of action. But, as I have said from the beginning, both privatization and closure are possible," he said.

Michal noted that the current interim management has managed to stabilize Nordica's situation. "And also managed to make profitable decisions. The company is stable. Otherwise, we would have gone out of business already," the minister said.

Nordic Aviation Group AS was established by government decision in September 2015. Michal was the Minister of Economic Affairs and Infrastructure at the time.

The Nordica group includes the airlines Nordica and Xfly and the consulting services company Nordic Aviation Advisory OÜ. The group is 100 percent owned by the Estonian state.

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Editor: Marko Tooming, Helen Wright

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