Listed under “Other receivables” in Nordica’s accounts is a sum of €4.556 million. Toomas Uibo, marketing and communication manager of Nordic Aviation Group (NAG), the state-owned Estonian airline flying under the Nordica trade name, confirmed to ERR on Tuesday that this is a loan granted to the airline’s former partner, Adria Airways.

For a year following the foundation of NAG as the successor of bankrupt Estonian Air, Adria Airways was the new state carrier’s most important partner, providing a booking system as well as operational services.

“One of the advantages of this cooperation model was the placement of advance payments and deposits in the partner’s accounts, covering their running costs and potential business risks,” Uibo said. “When the partnership ended in 2016, a part of Nordica’s liquid assets in Adria [Airways] was converted into a loan with an agreement of both sides.”

The result was a debt of Adria Airways to Nordica in the form of a cash debt converted into a loan in the amount of €4.556 million, listed in Nordica’s annual report under “Other receivables”.

“The conditions of this instrument, among them the interest rate, are agreed with international auditors and legal advisors and correspond to accounting norms as well as to best business practices,” Uibo stressed, adding that though the partnership with Adria Airways had ended a year ago, the two companies were still successfully working together.

The loan is listed in euros. The interest rate of the agreement is 1.9 percent, the loan period is six years. The loan’s internal interest rate is 15 percent, according to the annual report.

Pricewaterhouse Coopers audited the annual report and added its comments, confirming that the financial state of Nordic Aviation Group as well as its subsidiaries corresponded to good practice—with the exception of its loan to Adria Airways.

The auditors wrote in their comment that they hadn’t been able to find “sufficient proof” of similar interest rates in the market, and hence they hadn’t been able to find sufficient evidence either to assess the likelihood of Adria Airways paying back the loan.

“Due to these facts we were unable to ascertain if and how much this claim should have depreciated by Dec. 31, 2016,” they added.

Nordica was founded in autumn 2015 after the bankruptcy of state-owned carrier Estonian Air. It initially covered its operative requirements with the help of Adria Airways, and later started using aircraft held by another state company.

At the beginning of their partnership both carriers faced difficulties, with Adria Airways teetering on the verge of bankruptcy. The share of the Slovenian state in Adria Airways was later bought by German investment fund 4K Invest.