Mysteries of Aviation. “airBaltic” will allocate 136 million euros for rescue

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Minister of Transport Kaspars Briškens (“Progressives”) explained that the government decided to participate in the bond issue, because the economic contribution from the interest payments, which the state would receive in the same amount as private investors, is clearly visible, as well as it would significantly promote the development of the Latvian capital market. Bond investments of this type will be in accordance with the market rules and the conditions of the state aid of the European Union.

As recently as Monday, Finance Minister Arvils Asheradens (“New Unity”) promised less after the coalition meeting – he admitted that the state “airBaltic” bonds worth no more than 100 million euros could be purchased, but now it is already 136 million.

It is known that “airBaltic” needs 200 million euros by the end of July to be able to repay all the money to the buyers of the issued bonds. Five years ago, bonds were purchased by more than a hundred investors from 25 countries. It is not known where “airBaltic” will get the missing 64 million, but let’s assume that the airline’s management will manage to attract this money from somewhere. If the money is not repaid, then there is a threat of ugliness – it is understandable that the dream of airBaltic’s shares being listed on the stock exchange sometime in the future will be dashed. This is not the worst part – the worst is that there is a threat of insolvency, bankruptcy and liquidation. And then the planes bought for a lot of money will be sold cheaply in the Utrup under the hammer.

Oshley: ‘Everyone will be a winner’

What does the government’s decision on Tuesday mean? How to understand it – is it good or bad? The “Independent” asked economic experts who closely follow developments in the national airline to explain this.

Businessman and economist Jānis Ošlejs says: “This means that the right to purchase securities issued by the national airline “airBaltic” has been granted.

There are the most essential types of financing for financing any company. The first is equity – this is money that has been invested. With this money, the company is completely at risk. It is the money with which the investor risks the most, but also earns the most. The second type is the securities that A. Asheraden is allowed to buy in this case. These are loan documents that carry less risk than equity investments, but also lower profit potential.

airBaltic can also borrow money from banks and leasing companies. The risk for banks and leasing companies is even lower.

Businesses typically use all three methods. A “mix” between all three is needed. In the case of “airBaltic”, the equity capital does not currently need to be increased, but the securities that “airBaltic” had previously issued and sold to financial institutions must be refinanced. If “airBaltic” does not pay these securities, then financial institutions can try to achieve payment, even declare the company’s insolvency. It is right if these securities are bought. Then the question is who buys them. There were attempts to get someone else to buy these securities again and issue new ones, but it didn’t work. Therefore, the idea is that it should be done by the government. This is a very correct idea, because the risk for securities is relatively low – significantly lower than for equity.

It is a good thing for “airBaltic” – it can be seen that the state supports it. From the state’s point of view, such a step is very beneficial, because “airBaltic” is a profitable company. The risk of losing this money is very low, the gain in terms of interest is high. And it is good that it is ensured that airBaltic is able to develop and increase its fleet. The government lends the money, gets the interest rate, and gets the airline going. In the end, everyone is a winner. The state has a good airline, tax revenues are higher than what is currently being lent, all parties benefit.”

It would be foolish not to buy bonds

However, the “Independent” has questions. The state has already invested huge sums in the airline several times – in total, about half a billion euros. The annual profit of “airBaltic” was 33.6 million, which is not a comparable amount to what was invested in the company. Doesn’t it turn out that A. Asheraden has been entrusted with saving the airline again, which cannot exist without the help of the state?

To this, Oshley replies that previous investments have been in the company’s equity. “In this case, money is lent with high and guaranteed interest. In the circumstances when airBaltic is making money, I think it is a profitable investment. The government will receive interest on the loan, taxes from the people who work in the company, and taxes from the companies that supply goods and services to the airline. This also means airport staff, anyone who delivers food and other supplies that are needed. Not buying bonds would be a very stupid move, if tax revenues disappear, the state would be the loser,” says J. Oshlej.

Strakas: “Gausa must be kicked out!”

The former vice president of VAS “Latvijas dzelzceļš” Aivars Strakšas said in an interview to “Neatkarīgai” that he understands the motives of the government and A. Asheraden’s actions, but it is a pity that the government does not tell the public everything.

“For the state to put the airline “into the ground” at the moment would be the same as throwing 500 million euros into the wind. Perhaps there is still something that can be improved in this whole thing.

However, the business plan of “airBaltic” is unsuccessful – it does not ensure a positive cash flow and needs to be corrected. My belief is that airBaltic’s CEO and Chairman of the Board, Martins Gauss, should be replaced, because he is simply making fun of everything.

To give more money to M. Gauss, who has “grabbed” hundreds of millions? Give him another 100, 200, which will still not be enough, because we need 300? And then he will buy more planes. He is getting deeper and deeper into problems.

In my opinion, the solution is as follows: cancel Gauss, lend money to the airline, install normal management and organize the airline,” says A. Strakšas.

“The fact that “airBaltic” will not be able to reasonably find financial resources in the amount of 200 million euros was already clear a couple of years ago. It was evident that the airline’s financial situation at the end of 2022 did not allow to hope to attract external financing for the repayment of bonds. The inadequate aircraft procurement program made it even worse. In between there were many promises and fulfillment in the media, but the result is exactly what it is – once again the airline must be saved from bankruptcy,” says A. Strakšas.

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