Slovenia’s Adria Airways acquired by German fund

Slovenia’s Adria Airways acquired by German fund
By Ivana Jovanovic in Belgrade January 20, 2016

German investment fund 4K Invest has acquired a 91.58% stake in Slovenian national flag carrier Adria Airways as part of a recapitalisation-and-buy deal struck with the state, Slovenian Sovereign Holding (SSH) announced in a press release issued on January 19.

Adria Airways is one of the companies included in Slovenia's privatisation programme launched in 2013, under which the government plans to sell its stakes in 15 companies. Adria Airways’ privatisation is aimed at improving the airline's competitiveness, as well as efforts to grow the country’s economy.

According to the press release, 4K Invest will recapitalise Adria Airways to the tune of €1mn, as well as the€100,000 purchasing price of the shares. An additional capital increase of €3.1mn is to be provided by the Slovenian government, which is lower than the estimated and assessed direct costs linked with a bankruptcy scenario.

“In addition to that, the functioning company contributes to the Slovenian budget approximately €10mn annually through taxes while, under a negative scenario, the high costs of unemployment benefits would be directly charged to the Slovenia budget,” the press release read. 

The state had been looking for a buyer who would restructure the company, maintain the airline, and provide for its future development and therefore enabling long-term positive impacts to the budget and the development of the industry, SSH said.

The capital increase and sales process are expected to be completed in the following months, since regulatory approval must first be obtained by the buyer, and other contractual suspensive condition must be met.

SSH said that the entire sales process started in July 2015, when contact was established with a wide range of financial and strategic investors, with 4K Invest offering the best bid.

Slovenia's government approved on January 15 capital injection plans related to Adria Airways. The recapitalisation was confirmed by shareholders on January 19.

Slovenia tried to find a buyer for the carrier in 2012, but the tender ended inconclusively in early 2013, with media reports saying that Germany's Intro Aviation, a consultancy firm that helps troubled airliners recover, had come the closest among the 10 potential bidders for the airline.

In July 2015, Slovenia invited expressions of interest in the acquisition of the 91.58% stake in the airline, which includes shares held by the Republic of Slovenia via SSH (69.87%), as well as by the state-owned Bank Assets Management Company (BAMC, 19.63%) and SSH (2.08%).

4K Invest is a highly specialised fund that actively supports companies in their return to profitability and independence from their former ownership.   

Slovenian Press Agency (STA) reported on January 19 that, responding to the deal, Adria Airways chairman Mark Anzur said that €4.1mn in fresh cash will keep the company flying. However, he said he did not have details regarding the investor's plans for the flag carrier, with the bulk of talks with the German fund having been conducted by SSH.

"The fund had told [SSH] that it would stick to the current strategy. This means reducing cost per well as an analysis of the processes and optimisation."

Asked whether the arrival of a new owner would cause layoffs, Anzur said that one of the measures for cost optimisation is a reduction in headcount, especially in the back office. Of 415 staff currently employed by the flag carrier, 150 are in the back office.

"This is still a little high compared to other carriers. But we face a challenge with economy of scale because of our size. Retaining a certain standard of service requires having a certain number of staff," he said.

STA reported that while Anzur is optimistic about the deal, small shareholders believe it may not be enough.

"The Small Shareholders Association voted against it today because a capital hike by April 20, in view of last year's loss...will not suffice to keep the company operational through the winter," the association's head, Rajko Stankovic, said.

Adria Airways saw a net profit of €921,000 and operating profits of €3mn in 2014, after having negative results for several years before then. The carrier expects to return to profit in 2016, after making a loss of around €5mn in 2015.

Launched in 1961 as a charter airline, Adria began operating scheduled flights three years later with the opening of Ljubljana Airport. It currently operates a modern fleet of 10 short- and medium-range aircraft, which run around 170 weekly scheduled flights to around 20 European destinations.