Tim Gosling in Prague -

The Latvian government has put a minority stake in airBaltic up for sale as it struggles to find money to invest and stem losses after taking full control of the flag carrier in the wake of the Krajbanka collapse. However, with national carriers across Europe looking for strategic partners, the hunt will likely be a challenge.

An advertisement placed in the European and British editions of the Financial Times by the transport ministry on August 27 invites non-binding expressions of interest by November 1 for a stake of up to 50% minus one share. No immediate comment was available from officials on the tender call, reports Leta.

The tender says that the main factors in picking investors will be an "ability to support airBaltic's long-term development", their "reputation and experience," and the "availability and source of financial resources," reports AFP. Transport ministry spokeswoman Elina Balgalve told the newswire that the size of the share could be adapted. "The indicative terms are as mentioned in the proposal. However, different transaction structures can be considered based on negotiations and the mutual interests of involved parties," Balgalve said.

She declined to reveal how much Latvia expected to sell the stake for, citing commercial confidentiality, but claimed "there has been proactive interest from several parties."

Not choosey

Speaking to aviation specialist website ATW on August 22, CEO Martin Gauss said that airBaltic is "open for investors," but declined at the time to discuss the timing of the sale, saying it had not been decided. The executive also claimed, however, that the company was already in talks with potential investors, including airlines and investment companies. "Nothing will be ruled out," he said.

Given the current state of the market, the Latvian government and airBaltic has little scope to rule out any offers. Over a dozen European flag carriers are said to be seeking strategic investors as the crisis deepens a long loss-making run and prevents governments from coughing up cash in support. EU regulations are also a tricky issue, and already helped to sink Hungary's Malev this year by ruling it would need to pay back millions in state support under competition guidelines.

However, Brussels also stands in the way of the struggling national carriers attracting one of the few potential strategic investors available, which for the most part are assumed to be Middle Eastern and Chinese airlines looking for a European hub. Warsaw was optimistic earlier this year that it would finally manage to privatise Lot Polish Airlines via a sale to Turkish Airlines, but the deal fell through, reportedly due to EU rules preventing a non-EU owner controlling EU carriers.

That looks to have ended the interest from the east for the time being. Hamdi Topcu, chairman of Turkish Airlines, said on August 25 that his company is now considering acquisition opportunities in non-EU countries because of just that difficulty. That appears to leave Riga looking to sell a minority stake in an airline which has little, if any, hub opportunity to offer.

The Latvian state currently holds 99.8% of the company after seizing a 47% stake in November from Baltic Air Systems (BAS), with Russian airline Transaero controlling the remaining interest. Although former airBaltic CEO Bertolt Flick - with whom Riga fought a long battle for control and who remains the subject of legal charges in Latvia over alleged mismanagement - was the presumed owner of the stake, it emerged late last year that, as suspected, Russian banker Vladimir Antonov was in fact the real beneficiary of BAS.

Antonov is currently in London fighting extradition to Lithuania over embezzlement charges related to Snoras Bank, which collapsed in November when officials discovered a hole in its balance sheet of over €1bn. A couple of days later, Snoras subsidiary Krajbanka - Latvia's fifth largest bank - followed suit, with millions reportedly missing. While Snoras is being restructured by Vilnius, Krajbanka was declared bankrupt earlier this year.

Both Lithuania and Latvia are busy scouring the globe searching for Antonov assets as a route towards repayment of the huge volumes in compensation they were forced to pay depositors. The airBaltic stake was one of the first to be seized.

Under new chief Gauss, the flag carrier has rolled out a restructuring programme targeting LVL300m (€431m) in cost reductions to bring it back to profitability by 2014. Although it reported a first-half loss of €32m earlier this month, the CEO said that the programme is progressing better than hoped, and compares favorably with a loss of over €100m in 2011. "We are LVL50m better than last year," Gauss was quoted by ATW as saying.