LETA: airBaltic attracts investor who is ready to invest about EUR 50 million

September 18, 2015

Riga, September 18, LETA. Latvian national airline airBaltic has managed to attract financial investors from Western Europe, who are ready to invest in the airline about 50 million euros, LETA was informed by the financial consulting company Prudentia chairman of the board Kārlis Krastiņš.

Currently a letter of intent is signed. Investor name still cannot be disclosed due to confidentiality rules. It is a solid European investor who sees the competitiveness of airBaltic. On behalf of investor, a respectable law firm, an accounting firm, and a Latvian bank has been involved in transaction preparation.

Overall, it is planned to invest 120-130 million euros of equity - both from the State as a shareholder and from the new investor. The State would invest around 80 million euros.

The decision of the new investment by the State as a shareholder has to be adopted by the Cabinet of Ministers. Responsible officials are aware of the new airBaltic business plan 2016 - 2021, and in the next few weeks it is planned to evaluate the investment in the airline in a government meeting.

Krastiņš estimates that an agreement with a financial investor could be signed in the next three weeks, after that the name of the investor would be revealed. Currently the shareholders agreement draft is being prepared. In the meantime, the security check is taking place, the investor must meet various security criteria.

Krastiņš did not deny that, ideally, a strategic investor would be an airline that would invest in airBaltic not only money, but also bring more passengers. Such an investor is still being sought. Nevertheless, attraction of financial investor does not exclude the search for a strategic investor in Asia. The Ministry of Transport has invested efforts in promoting cooperation with China in the field of transport, and it has justified itself. Currently there are concrete talks with a powerful Chinese group on cooperation with airBaltic and the Latvian transport sector as a whole.

Krastiņš also points out that attracting investor is highly competitive in the region, for example, the Polish LOT and the Finnish Finnair is also searching for investors.

As noted by Prudentia manager, airBaltic has developed a new, structured business plan up to 2021, according to which the investments would be carried out already this year. The aim is to renew the airline's fleet. Already a few years ago the contract with Canadian aircraft manufacturer Bombardier was signed for the purchase of aircraft, the contract ensures favorable conditions to buy the planes.

According to Krastiņš, for airBaltic this year has been both difficult and important. Restructuring resulted in less flights, lower number of staff, optimized costs, and return to profitability. The company was able and wanted to grow and it is well positioned to grow, emphasized Krastiņš. It also sets a new business plan, which foresees development in Tallinn and Vilnius airports. As Krastiņš said, it is planned to continue the development in Tallinn airport despite the retaliation from Estonians. In the meantime, Lithuanian attitude has been very positive - airBaltic development in Vilnius is being promoted.

As reported before, in 2012 the Ministry of Transport made a publication in the Financial Times European and British editions announcing the sale of airBaltic shares and inviting potential investors to submit offers. The Latvian government offers investors to buy 50% minus one share of airBaltic. Prudentia is acting as an advisor to state on airBaltic, including investor attraction, since 2010.

Transport Minister Anrijs Matīss (V) earlier reported that there are active negotiations regarding potential investment with the two aviation industry companies, as well a possibility to engage all three Baltic countries to join the company. In late July Matīss described investor attraction to airBaltic as active and mentioned that serious negotiations phase has been reached. According to the words of the Minister, the development of the airline has two, one might say, three scenarios. The first two scenarios are attributed to private investors' attraction to airBaltic, but the third option, as suggested already, is associated with the possibility that the other two Baltic counties would gain participation in airBaltic.

Minister did not name the remaining two possible private investors but informed that both are from aviation industry, one of them is right here from Europe, while the other is from further away. The negotiations with airlines have advanced further than the negotiations with the Baltic States, told Matīss and stressed that the two scenarios are not mutually exclusive, that is, it would be possible both to attract private investors, as well as for the Baltic countries to jointly participate in the company, controlling 50% plus one vote.

As reported, airBaltic was in financial difficulties since 2008 that resulted in significant losses in 2010 and 2011, it had negative equity and there were several State aid measures undertaken. In November 2012, the EC launched an in-depth investigation to assess whether various measures comply with EU rules on state aid. EC last year found that airBaltic's restructuring plan will allow the company to become viable in the long term, without causing undue distortion of competition in the single market.

At the end of 2011, after the suspension of AS Latvijas Krājbanka, the state purchased 47.2% of airBaltic shares, pledged by airline's private shareholder BAS, from the bank's attorney for the nominal value of 224 thousand lats, Latvian government explained its actions with private shareholders unfulfilled commitments. The owners of BAS were the former head of airBaltic Bertolt Flick and Taurus Asset Management Fund Limited. Thus, at present Latvian state owns 99.8% of airBaltic shares.

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