Flick warns of "fatal" situation at Latvia's airBaltic

By bne IntelliNews September 13, 2011

Mike Collier in Riga -

What feels like the endgame at Latvian airline airBaltic appeared one step closer on September 12 when president and main minority shareholder Bertolt Flick launched a blistering attack on the majority shareholder, the Latvian government.

Flick - who has refused to even visit Latvia since June over fears that he will be arrested as part of a corruption investigation as soon as he lands - claims the government of Prime Minister Valdis Dombrovskis had turned the airline into a "hostage" to elections due to take place on September 17, creating "a crisis of confidence in customers and partners alike" and warned that unless a planned increase in airBaltic's share capital takes place pronto, the situation "may become fatal to the airline."

The German who has been with the company since its founding in 1995 and owns 47%, also took the opportunity to break his recent silence to refute allegations made on an investigative TV show on September 11 that there was anything dodgy about an attempt by a mystery investor the previous week to acquire nearly 60,000 shares in airBaltic for €9.6m.

According to Flick, the attempted purchase was an attempt to tidy up a discrepancy between airBaltic's registered and paid-up share capital which dates as far back as 2002, and that the Transport Ministry had actually asked for the situation to be sorted out before any fresh investment in the company could be made. Attracting an investor willing to pay over the odds for shares was a practical measure to maintain liquidity while the government dithers over making good on a promise to increase the airline's share capital by up to €100m, Flick claimed. "Thus arises the strange situation in which on the one hand the government of Valdis Dombrovskis undertakes to invest LVL50m-70m, but the Finance Minister [Andris Vilks] claims that there is no money, and he obviously does not support the decision," says Flick, who delivered similarly withering broadsides against Transport Minister Uldis Augulis and his long-term hate figure Economy Minister Artis Kampars.

From the other side of the chess board, the appearance of the mystery investor looks suspiciously like a gambit by Flick's Bahamas-registered company Baltic Aviation System (BAS) to increase its holding by acquiring what a spokesman for PM Dombrovskis described as "non-existent" shares. It wouldn't be the first time BAS had done deals of questionable propriety while forgetting to mention them to anyone else, for example selling itself exclusive rights to the "airBaltic" brand in December 2010 for a cool €13m then charging the airline a monthly fee to use its own name.

A Parex in the making

While Flick is right that the fate of airBaltic has become a hot pre-election topic - the state owns 52% of it - it's not as simple as the government wanting to make it so, because the way the whole affair has been handled undermines confidence in the Dombrovskis coalition at least as much as it boosts it.

Opposition MP Nikita Nikiforov, whose Harmony Centre party could emerge as the largest single party after the September 17 vote summed up the pubic mood well on September 8 when he said: "The situation with airBaltic is absolutely absurd."

Comparing the airline's perilous current liquidity (it lost €47m in 2010 according to unaudited accounts signed only by Flick, with rumours abounding that the real losses are bigger) with the notorious Parex Bank, whose near-collapse brought the Latvian state to the edge of bankruptcy, Nikiforov said: "I cannot understand how government officials did not know about this until the last moment - it's a state-owned company!"

While Dombrovskis has shown some willingness to get to the bottom of what is actually happening at airBaltic, the pace of the investigation has been painfully slow and lacked decisiveness. Following a cabinet meeting on September 6 that seemed to back the share capital increase plan, his office back-pedalled rapidly once newswires started to report that a deal had been agreed, talking instead of a "conceptual decision" and "possible government investment if a solution on the deal's structure that is acceptable for the state is reached."

Meanwhile, employees of the airline are left in the least enviable position of all. Workers that bne spoke to said they had been told nothing about their future despite rumours that the airline's 10 Fokker aircraft (of a total fleet of 34 planes) will be imminently retired from service.

While they read slick press releases about August being "the best month in [the airline's] history" and, with a certain irony, an international award for being "one of the top six airlines in the world for innovations in generating ancillary revenue," they are left to wonder which political party is most likely to ensure they still have a job to go to in six months' time.

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