An airBaltic
executive has shared that the airline’s talks with a strategic investor, which was supposed to be a validator of the airline’s business model and facilitator of the initial public offering (IPO), hit a snag, with the airline now being at crossroads in terms of its future.
At major crossroads
In a post on LinkedIn, Klavs Vasks, the chairman of the supervisory board of airBaltic, warned that the airline was at a major crossroads in terms of its future. According to Vasks, while the Latvian Minister of Transport, Kaspars Briškens, has reiterated on multiple occasions that raising capital for the airline was the sole responsibility of Vasks and Martin Gauss, the chief executive officer (CEO) of airBaltic, the role of a company’s shareholders in enabling an IPO was “critical.”
airBaltic is owned by the Republic of Latvia (97.97% stake) and Aircraft Leasing 1, a Latvia-based limited liability company (Sabiedrība, SIA). Vasks noted that shareholders’ support was critical, especially when the parties disagreed about specific issues.
“The first steps towards the capital markets have been associated with significant challenges. Negotiations with a strategic investor, which was intended both as a validator of airBaltic’s business model and a facilitator of the IPO process, have not gone as smoothly as hoped.”
Photo: Bjoern Wylezich | Shutterstock
While Vasks did not identify the potential strategic investor, previous reports had outlined Lufthansa Group
as a possible suitor, with the Germany-based airline group having eyed a 10% stake in the Latvian airline.
The airBaltic executive emphasized that the carrier has faced a challenging political environment in addition to the talks falling through. Vasks stated that if airBaltic wanted to go through the IPO, local politicians had to make bold decisions.
“However, it is no secret that any decision concerning airBaltic and made in the offices of Brīvības Street 36 [the Cabinet of Ministers of the Republic of Latvia – ed. note] often causes a storm of indignation from the media and the public – it must be admitted that it is often based on false assumptions or a lack of clear understanding of the nature and necessity of these decisions.”
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Impact on Latvia
Vasks said that awareness of airBaltic’s impact and value to the Latvian economy could motivate certain stakeholders to make the right decisions and take the necessary action. International Air Transport Association (IATA) detailed in a document that airlines contributed $1.9 billion to Latvia’s general domestic product (GDP), or 4.4% of the country’s total GDP, in 2023. Gauss, the airline’s CEO, shared the document on X, formerly known as Twitter.
Nevertheless, the carrier’s chairman continued that airBaltic could launch its IPO in the next few months at the earliest. This will depend on any agreements with the strategic investor and the situation in the financial markets.
“However, it must be admitted that time is not on our side. The current bond obligations and their interest rates are not sustainable for the long-term operation of the company.”
On May 7, 2024, airBaltic priced a €340 million ($354.3 million) bond issue with an interest rate of 14.5% for five years and three months. In part, the bond has been used to refinance its previous €200 million ($208.5 million) bond. At the time, Gauss remarked that the latest bond offering and the refinancing would substantially boost its liquidity, allowing the airline to continue investing in its fleet, now measuring 49 Airbus A220-300
aircraft, per the latest data from ch-aviation.
Photo: MBekir | Shutterstock
Vasks warned that if airBaltic wanted to meet its obligations and achieve its strategic goals, it could not continue operating with the negative equity it had accumulated. While the executive acknowledged that an additional capital injection could cause another local media storm, the need for investment was a must unless Latvia wanted to abandon its shareholding in airBaltic.
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Pleading for patience and understanding
Vasks continued that no company has gone public without clear ambitions, a well-defined strategy, and capable management. He said that while airBaltic has these pillars in place, it lacks a shared vision from all stakeholders to ensure its success.
“As a key driver of economic growth, export potential and regional connectivity, airBaltic’s contribution to the lifeblood of the Latvian economy is irreplaceable.”
Ignoring these benefits to benefit oneself politically threatens one of Latvia’s most influential brands, the executive added, noting that even if the Latvian government had to pay a lot of cash to bail out the airline following the global financial crisis, the move “was objective and necessary,” according to Vasks.
“Therefore, I call on all those involved: both those directly responsible and everyone who cares about Latvia’s development in the coming years, to show patience, understanding and a more optimistic view of the future.”
Photo: Karlis Dambrans | Shutterstock
airBaltic ended Q3 2024 and the nine months of 2024 with a net profit and net loss of €40.2 million and €48.5 million, respectively. Furthermore, while the airline has had to deal with the prolonged turnaround times (TAT) during the maintenance of the Pratt & Whitney
PW1500G engine, the exclusive powerplant of the A220
aircraft family, the issues will be compounded during the upcoming IATA summer season, forcing the Latvian carrier to cancel more than 4,600 flights between March and October.
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Engine issues mean the carrier is forced to cancel 4670 flights from all its bases next summer.
