The national airline Nordica is waiting for Polish LOT to approve a contract that will see Estonian company acquire 49% of joint subsidiary Regional Jet, Nordica CEO Erki Urva has announced.
Urva said that Nordica hadn’t received the EUR 30 million promised by the state because its precondition was that first, the contract with the partner company LOT needed to be concluded.
“Our supervisory board has approved the precontract, we are hoping that during this week, the approval of the Polish side will also come,” Urva said.
Minister of Finance Martin Helme said at the government press conference that Nordica would receive an extra EUR 1.7 million from LOT in addition to Regional Jet.
In August, the European Commission gave the Estonian government permission to support Nordica with EUR 30 million to help the airline cope with difficulties deriving from the coronavirus crisis. Now, the issue has finally reached the government’s agenda. EUR 22 million will be paid in as Nordica’s share capital and EUR 8 million will be granted as a loan. If the contract with LOT is concluded, Nordica can start loan negotiations with KredEx.
Urva emphasized that the loan was only meant for covering the damage caused by the coronavirus crisis. At the same time, he expressed hope that flights would be restored next year and the economic situation would improve. Nordica will continue with the business plan, which was the basis of the European Commission’s permission.
“We are ready to start flights from Tallinn. But this is a complicated issue, because now the occupancy of the flights is 30% and the number of passengers has decreased by 90% compared to last year. So, currently, flying would mean burning money and with a bright flame,” Urva admitted.
He added that 70% was the seat occupancy rate required to keep the company afloat. “So we won’t start with the flights now and will wait until spring. The critical question is if the vaccines come and whether they will work and will be accessible for the people. If yes, then I predict that flying will be restored quickly. People want to fly but at the moment they’re afraid.”
Regarding plans for Regional Jet once the partnership is acquired, Urva named restoring the previous volume of flights as the first goal. “What will happen in the long-term is a question to the owner. I personally don’t see why a country should own a company that primarily operates with outsourced flights. But it is reasonable to sell the state’s participation when the markets have recovered and the value of the company is rebuilt. Currently, there is no market for airplanes because they are predominantly grounded that puts their worth on par with scrap metal.”
Urvas sees great potential in Regional Jet after the crisis because the company has small airplanes. He brought an example that when bigger companies’ smaller flights had 180 seats and the occupancy was 30%, it was financially more reasonable to fly with Regional Jet’s 90-seat planes.
Speaking about the future of aviation more broadly, he pointed out airBaltic that received EUR 250 million and managed to “burn through” EUR 180 million within half a year. “This winter will be a moment of clarity for a lot of people because companies, that have received billions are complaining that the money is running out. But the European Union has sent a message that there won’t be a second wave of aid. It is an unprecedented time for both airline companies and tourism companies.” (ERR/Business World Magazine)