Troubled state-owned airline Nordica may have to be privatized in the years to come, due to European Commission rules requiring the repayment of state aid.
Management board chair Erki Urva says that European Commission rules require state aid, which amounts in the case of Nordica to EUR 30 million and was issued after the peak of the coronavirus pandemic led to practically all flights being grounded, must be paid back within seven years.
The alternative is to privatize the airline.
The European Commission approved state aid for Nordica in August, with the conditions including a freeze on board members’ pay and a bar on aggressive expansion into other routes etc.
In addition, this money must be paid back, or the airline privatized.
Urva previously reported that the state aid was the only thing keeping the airline – which did not own its own aircraft but rather leased them and, via a subsidiary, operated other carriers’ such as SAS routes for them – from bankruptcy. At the same time he said the proposed EUR 30 million – a sum, which was dwarfed by aid granted to other European state-owned carriers – was sufficient for survival.
While the commission has green-lighted the aid, it is up to the domestic government to decide whether to implement it, which they have not done yet.
Urva also remained sanguine about Nordica’s prospects, comparing its approved loan with the much larger sums granted to other European airlines and claiming that the rules on aviation were likely to have changed once again within the next seven years.
Nordica presented its new business plan to the Riigikogu’s economics affairs committee in late September, after the state aid decision – which would see Nordica get EUR 22 million in share capital and EUR 8 million in loans from the state – had been made.
The rationale behind the European Commission requirement to repay state aid in due course is that private sector companies would normally have to do the same.
The Estonian state owns 100% of Nordica.
Most European state-owned or part-state-owned airlines, including Lufthansa (EUR 6 billion), airBaltic (EUR 286 million) and SAS (EUR 1 billion), have received state aid, it is reported.
Nordica’s predecessor, Estonian Air, wound up its operations in 2015 after state aid it had received was declared illegal by the European Commission, which required the airline to repay it to the state. Since Estonian Air was in no position to do that by that time, it had to shut up shop.
The coronavirus pandemic is likely to have made the commission more friendly towards state aid in such cases, however.
Nordica’s subsidiaries Regional Jet/Xfly operate domestic routes in Sweden as well as a planned Tallinn-Stockholm SAS route. Polish state airline LOT in turn owns a 49% stake in Regional Jet, though the Estonian government has said it plans to buy out that proportion.
Nordica employs over 100 people. The European Commission forecast its 2020 losses at EUR 23 million, a figure which Erki Urva says is overstated. Brussels also said the airline could go bankrupt until year end. (ERR/Business World Magazine)