On Wednesday, Lufthansa announced it would invest €14 million in airBaltic, acquiring a 10 percent stake in the company.

Estonian Air CEO Toomas Peterson, who headed both Estonian Air and the Civil Aviation Authority, told ERR Lufthansa's decision is good news.

"This also indicates Lufthansa's opinion on airBaltic's current value, which would be around €140 million. However, the final decision will be made by the new investors when the IPO is carried out — if it is carried out," he noted.

Peterson said €14 million is a relatively small amount, but taking into account airBaltic's turnover, debt burden of over a billion euros, accumulated losses from previous periods of around €650 million, and Lufthansa's capabilities, it seems like Lufthansa was granting Air Baltic a trust loan before the initial listing of its shares.

Former Nordica CEO Erki Urva said predicting the impact of Lufthansa's move is difficult because it only has a 10 percent stake in airBaltic. This means the controlling stake is still in the hands of the Latvian state.

"I believe that Lufthansa's main interest in airBaltic is because airBaltic provides them with a significant amount of subcontracting, Lufthansa is always interested in having lower-cost carriers on certain routes to handle subcontracting for them," he said.

Speaking about how Lufthansa acquiring a 10 percent stake in the company for only €14 million, Urva noted that Air Baltic has no real value beyond its strategic importance.

"If you look at its balance sheet, debt burden, and all that, and how much money has been put into it, then from a business perspective, it has actually never been profitable," Urva acknowledged.

Peterson speculated the company might be reorganized before a possible IPO, which would primarily mean straightening out unprofitable routes and increasing the ACMI service, i.e. providing aircraft as a complete package with crew, maintenance, and insurance to another company, because closing routes and reducing density would leave excess aircraft.

"The engines of airBaltic's Airbus 220-300 aircraft have also become an issue. The company only operates this type of aircraft, which are more fuel-efficient and environmentally friendly, but now require extraordinary maintenance, which in turn affects rotations and further increases the company's losses," Peterson pointed out.

Urva said there was nothing much the Latvian state could do – the company needs additional capital, and the European Union's state aid rules only allow it to invest money in an equal amount with some private investors involved.

"Right now, the fact that a private investor has come in has also allowed the Latvian state to inject additional funds into airBaltic," noted Urva, who believes that Lufthansa's involvement is good news not only for airBaltic itself but also for all air travelers in Estonia. "Whether this could lead to Lufthansa dictating where and how much to fly is another question altogether."

He said it cannot be ruled out that airBaltic's recent decision to suspend a number of routes could have been a precondition of the Lufthansa deal.

The former Nordica manager recalled that while he was still involved with the company, Nordica was in serious negotiations with Lufthansa, with the aim of outsourcing to Lufthansa, but there were certain preconditions that were not met at the time.

Tallinn flights should not be affected by Lufthansa's decision for now

Toomas Peterson believes a change in the supervisory and management boards is also being mulled. This is because the expansion was mainly based on the old national airline model, which requires a lot of money and time to achieve scale.

The reduction of flights and routes is the first sign.

Lufthansa's decision should not initially affect Tallinn flights much, because aviation plans are made for the long term, Peterson said. However, the possibilities of continuing flights may improve slightly due to Lufthansa's network and sales channels.

Peterson believes Tallinn Airport needs investments to create better conditions, including financial ones, for existing and new airlines operating here.

"This is the only gateway to fly out of this corner of the world. It might be worth considering international tenders for certain routes, similar to the Tartu-Helsinki route, which is partially financed by the city of Tartu," he pointed out. "Given the small size of our market and the lack of transit passengers, we would need to subsidize around €60-70 million per year to ensure reasonably affordable tickets to essential destinations."

Peterson said this idea needs to be kept in mind, especially if, for example, an airline with a large stake in Tallinn drops out. Investing in an airline should be avoided because both Estonian Air and Nordica shows it is not possible.

It is not yet known when airBaltic will list. Lufthansa's stake in airBaltic will be converted into shares after the company goes public, and the size of Lufthansa's stake will depend on the market price on the stock exchange. According to the agreement, it cannot be less than 5 percent.

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