Air­baltic gained in­ter­est from four Western Euro­pean and North Amer­i­can in­vestors

The Baltic Times - - BUSINESS - Li­nas Jegele­vi­cius

With the in­ten­si­fy­ing ef­forts to find a cred­i­ble in­vestor, air­baltic, the Baltics’ sole air car­rier, says sev­eral po­ten­tial in­vestors from Western Europe and North Amer­ica have al­ready ex­pressed will to put money into the com­pany. The new des­ti­na­tions com­menced this year have been a suc­cess as the com­pany con­tin­ues re­new­ing its fleet with state-of-the-art Bom­bardier CS300 jets. The Baltic Times sat down with Mr. Martin Sed­lacky, the Chief Op­er­a­tions Of­fi­cer at air­baltic and a Mem­ber of the Board of the com­pany, to speak about the summer and the in­vestor search.

How is the summer for air­baltic?

The summer is very busy for us. In fact, in terms of trans­ported pas­sen­gers, we achieve new records this summer. In July, air­baltic car­ried 393,312 pas­sen­gers, or 21 per cent more, than in the same pe­riod of 2016 - it is a new record num­ber of car­ried pas­sen­gers for the month of July. The book­ings are high, as well as the rev­enues, and many of the flights are full. So, no ex­ag­ger­a­tion, it’s been a pretty crazy summer.

Can you talk of the new air­baltic des­ti­na­tions launched ear­lier this year. Have all of them jus­ti­fied them­selves?

In 2017, air­baltic launched 12 new routes. The thir­teenth route to Abu Dhabi will be launched on Oc­to­ber 29, 2017. All of them with the ex­cep­tion of one, Vil­nius- Mu­nich, have been bet­ter than we planned. It is some­thing that did sur­prise us nicely.

Are you go­ing to aban­don the less busy route, Vil­nius-mu­nich?

No, we do not in­tend to do that – there might be some ad­just­ments in terms of the fre­quency though.

How has the only do­mes­tic itin­er­ary played out, Riga- Liepaja?

It is do­ing quite well. It has al­ready ful­filled our ex­pec­ta­tions that were rather mod­er­ate, as short do­mes­tic haulage is quite dif­fer­ent from the in­ter­na­tional routes. I mean in terms of pas­sen­ger num­bers, mar­ket­ing and pos­si­bil­i­ties. In fact, the route is do­ing bet­ter than we thought - the book­ings are higher than we ex­pected at the launch. The lo­cal me­dia is very up­beat about it and the buzz works well for all.

air­baltic achieved 10 per cent pas­sen­ger growth in 2016, and was set to ac­cel­er­ate its growth with 16 per cent ad­di­tional tick­ets or seats on sale in 2017. How is the en­deav­our go­ing?

We are not only meet­ing the goal, but we’re over­achiev­ing it - we’re see­ing around a 20 per cent year-onyear in­crease. If late au­tumn and De­cem­ber do not turn out sig­nif­i­cantly worse for us, I be­lieve we can end the year with growth in the range of 20 per cent, which is very good.

I reckon summer sea­son air ticket sale growth is char­ac­ter­is­tic to the whole in­dus­try?

In­deed, the mar­ket is do­ing well over­all, and par­tic­u­larly so in summer. I am not in a po­si­tion to speak of the re­sults of other Euro­pean air­lines, but, as a rule, most of them do well in a high hol­i­day sea­son.

Is the pas­sen­ger growth of 29 per cent air­baltic reg­is­tered in Lithua­nian air­ports over the first half year con­sis­tent with the up­ward trends on other air­baltic routes?

As I said, the mar­ket per­for­mance is solid, but the boost in the Lithua­nian mar­ket is due to the ca­pac­ity we have in the lo­cal air­ports, first of all Vil­nius. I can just hope that mov­ing op­er­a­tions from Vil­nius air­port to Kau­nas air­port, due to the re­con­struc­tion of the run­way in the capital city, will not af­fect them, as we see some neg­a­tive ten­den­cies a re­sult.

Are you aware if your boss, Martin Gauss, the CEO of air­baltic, struck any deals in the re­cent Paris Air Show ex­hi­bi­tion, at which CS300 air­craft were show­cased in the Bom­bardier ex­hi­bi­tion pav­il­ion? Such in­for­mal meet­ings pro­vide great op­por­tu­ni­ties to step up the col­lab­o­ra­tion you have with the Cana­dian jet maker, don’t they?

No doubt, they do. As I was in the show my­self, I can tell there were many par­ties in­ter­ested in the air­craft. We feel very de­lighted to have the agree­ments with Bom­bardier on the jet sup­ply for air­baltic, and we’re look­ing for­ward to fur­ther re­new­ing our fleet with that type of air­craft.

Since you’re in charge of op­er­a­tions at air­baltic, maybe you can elab­o­rate more on the per­for­mance of Bom­bardier air­craft, the re­sults and the out­look?

I just can re­peat what has been said many times – the type of air­craft is state-of-the art and very ef­fi­cient in terms of fuel use. By 2021, air­baltic will own the youngest fleet amongst Europe’s air­lines. It’s a per­fect fit for air­baltic. The air­craft of­fer more space for pas­sen­gers and crew, pro­duce less noise and have fewer emis­sions from fuel burn. The jets are eas­ier to con­trol than their pre­de­ces­sors, the main­te­nance in­ter­vals are very good and all data is on­line. The in­tro­duc­tion of the air­craft has been very smooth, which makes us very proud.

It was re­ported that air­lines op­er­at­ing Bom­bardier Cseries per­formed pre­cau­tion­ary borescope in­spec­tions of the air­craft's Pratt & Whit­ney PW1500G geared tur­bo­fans ear­lier this year – checks that fol­lowed re­ports of is­sues with re­lated PW1100G en­gines, which Bom­bardier has con­firmed. Does it con­cern you?

In­deed, air­baltic CS300 is pow­ered by Pratt & Whit­ney's rev­o­lu­tion­ary Pure­power PW 1521G en­gines. air­baltic has re­ceived Pratt & Whit­ney in­for­ma­tion on ad­di­tional checks and they will be car­ried out strictly in ac­cor­dance with the man­u­fac­turer's spec­i­fied sched­ule. These checks are not af­fect­ing the oper­a­tion of air­baltic, es­pe­cially in the most ac­tive tourist sea­son - summer, when the air­line ex­pands its scope by of­fer­ing 15 per cent more tick­ets and has added 12 new routes.

Hon­estly speak­ing, I was ex­pect­ing a more dif­fi­cult in­tro­duc­tion of the jets, but the wor­ries ap­peared to be to­tally un­founded.

air­baltic has been in lo­cal and in­ter­na­tional news for a while fol­low­ing the com­pany’s rev­e­la­tion it is on the look­out for an in­vestor. How is the en­deav­our go­ing? How many po­ten­tial in­vestors have stepped for­ward by now?

If I am not mis­taken, there are four bid­ders, which have reached the last, or fourth stage of the se­lec­tion. The com­pa­nies in­ter­ested in ob­tain­ing a stake in air­baltic are west of Latvia – ei­ther in Western Europe or in North Amer­ica. At the mo­ment, we’re mostly talk­ing of pri­vate eq­uity and fi­nan­cial in­vestors. I can­not be more spe­cific at this point due to con­fi­den­tial­ity agree­ments.

What are the key re­quire­ments that the bid­ders and the new in­vestor even­tu­ally have to com­ply with?

There’s a dis­cus­sion of the eval­u­a­tion of the com­pany and the pro­ceeds to the State of Latvia. That’s the first key el­e­ment that needs to be agreed upon. The sec­ond el­e­ment is mak­ing sure that air con­nec­tiv­ity of Riga re­mains high and there are many mi­nor ones.

To sum up, all is about the abil­ity to max­i­mize the pro­ceeds, fi­nance the fleet and en­sure that Riga re­mains a ma­jor re­gional air hub. Some of the things, like sell­ing air­baltic shares, will take place on a gov­ern­men­tal level, so the Lat­vian gov­ern­ment, not us, are in the po­si­tion to speak about that.

Do you have any hints from the Lat­vian Gov­ern­ment whether it wants to keep the con­trol­ling stake at air­baltic, which can be cru­cial for the com­pany’s fu­ture?

Noth­ing is ruled out in terms of a deal. As of now, there is no clearly for­mu­lated of­fer by the par­ties in­volved – things are on the com­pany eval­u­a­tion level. I reckon that the Lat­vian Gov­ern­ment will seek to re­tain a ma­jor­ity stake de­pend­ing on what the se­lected in­vestor will pro­pose. There’s one thing if he wants to get, say, a 20 per cent stake, and if he wants to get more than 50 per cent of the shares. It is pos­si­ble that the in­vestor will opt out for the lat­ter, but we have to wait for the an­swers a lit­tle longer.

So, if the Lat­vian Gov­ern­ment does not have the ma­jor­ity at the end of the day, the in­vestor’s hands may be free to pur­sue sub­stan­tial changes with re­gard to the com­pany struc­ture and in­fra­struc­ture. Am I right?

As I said, Latvia will put safe­guards through a set of agree­ments, en­sur­ing that key re­quire­ments are met. If that were the case, it would ease pres­sure on the Lat­vian Gov­ern­ment to fi­nance the air­baltic fleet and be re­spon­si­ble there­fore for the com­pany’s op­er­a­tions.

How­ever, you per­haps can­not rule out the pos­si­bil­ity that with the Lat­vian Gov­ern­ment out of the game, the new in­vestor will find ways to im­ple­ment what suits its vi­sion best?

It can­not be ex­cluded as an im­pos­si­bil­ity, to be frank. We’ve been op­er­at­ing for many years now and the in­ter­fer­ence of the Lat­vian Gov­ern­ment was al­ways min­i­mal. Of course, if there’s a new owner, he can say--hey guys, you have to do this and that. But, if the in­vestor is smart and has a lot of ex­pe­ri­ence which we’re look­ing for through the se­lec­tion process, he will most likely lis­ten what the peo­ple who’ve been run­ning the com­pany for years, like Mr Martin Gauss (CEO of air­baltic) and other key of­fi­cers in the com­pany, have to say on one is­sue or an­other. The goal is about en­sur­ing that the car­rier con­tin­ues mak­ing money. We are suc­cess­fully do­ing it now, so a smart in­vestor will def­i­nitely con­sider the re­sults and the achieve­ments we have by now.

Is air­baltic ca­pa­ble of up­grad­ing the fleet and the Riga Air­port in­fra­struc­ture with­out an in­vestor?

In­deed, we’re ca­pa­ble of do­ing it on our own, but the ques­tion is how you do it. There are sev­eral op­tions, whether you use an op­er­a­tional lease or fi­nance lease, or you take a bank loan and get some eq­uity. We are able to take on each of these, as the com­pany has credit rat­ings, mean­ing we can bor­row from the pri­vate sec­tor. Yet we be­lieve that with a strong part­ner be­hind us, the op­tions and pos­si­bil­i­ties would be much bet­ter -we could im­prove the bal­ance sheet more sig­nif­i­cantly, and so on.

Prague, once a ma­jor Cen­tral and East­ern Euro­pean air hub, has lost its sta­tus af­ter the pri­va­ti­za­tion, with many of the flights be­ing resched­uled or can­celled. Can you be sure it won’t hap­pen to Riga?

I was in­volved in the process of re­struc­tur­ing Czech Air­lines at some point in the ca­pac­ity of a con­sul­tant. It was not the pri­va­ti­za­tion that led to the sit­u­a­tion you men­tioned. It was the poli­cies and the new rules con­cern­ing state aid to the air­line, which led to the sit­u­a­tion. Hun­gar­ian Malev has dealt with a sim­i­lar sit­u­a­tion. Cer­tainly, it is im­por­tant for an air­line to stay com­pet­i­tive in the busi­ness with­out state aid, but some­times with­out it, it is very hard to keep an air­line healthy and en­sure air con­nec­tiv­ity.

How will the summer of 2018 is likely go­ing to look for air­baltic? Can you pre­dict it al­ready?

So far 2017 has been an ex­cel­lent year for air­baltic – al­ready seven brand new Bom­bardier CS300 air­craft have suc­cess­fully joined our fleet as we are serv­ing a grow­ing fam­ily of cus­tomers. We are de­lighted to share the first glimpse of fore­cast how our 2018 is go­ing to look – for the summer sea­son of 2018 air­baltic has added Malaga (Spain), Lis­bon (Por­tu­gal), Split (Croa­tia), Bor­deaux (France) and Gdansk (Poland). Ad­di­tional new des­ti­na­tions will be an­nounced in the fu­ture. A com­plete sched­ule of air­baltic flights can be found on the com­pany's home­page at www.air­baltic.com.

Martin Sed­lacky, the Chief Op­er­a­tions Of­fi­cer at air­baltic

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