Latvia inks controversial airBaltic deal

By bne IntelliNews February 4, 2016

The Latvian government has signed an investment deal with a German investor, who will put in €52mn in the flag carrier airBaltic on top of a government loan of €80mn, the airline announced on February 4. The deal is expected to help the struggling company stabilise and then expand into neighbouring markets with a help of a modernised fleet.

Signing of the deal with Ralf-Dieter Montag-Grimes comes after months of controversy over the plan to invite the German entrepreneur – who has strong business ties with Russia - into the Latvian flag carrier. However, Riga has been struggling to stabilise airBaltic for too long to dismiss the opportunity, while it's also keen to exploit the demise of flag carriers in neighbouring Lithuania and Estonia.

“The new equity will be used for investing into new aircraft rather than leasing them, thus giving airBaltic an advantage on the cost side and improving passenger experience. This will further enhance the connectivity of Latvia, support economic growth and create new jobs,” claimed State Secretary at the transport ministry Kaspars Ozolins.

The government has been seeking an investor for the national carrier for some time. The airline, at risk of being grounded a few years ago, has overcome immediate crisis, but Riga has been warned it needs to move fast to strengthen the company and expand its operations into neighbouring Baltic markets in order to make it more attractive for a major privatisation push.

The push has not been without political repercussions. Transport Minister Anrijss Matiss was sacked by outgoing Prime Minister Laimdota Straujuma late last year due to his apparent lack of enthusisam for the deal. That, in turn, fractured the government, which collapsed in early December. A new cabinet i due to take over shortly.

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