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Aeropolitics, Airline Management, Bombardier, Other Aviation Issues, Regional Aircraft, Regional Airlines, UPDATES

UPDATE: Latvia’s 98% government owned airline, airBaltic will review an offer from a unknown “Chinese” investor for 49% of the airline on October 20th (only 5 weeks after China’s CEFC buys 10% of Czech Republic’s Travel Service increasing to 49% shortly and with it gains 34% of Czech Airlines, which is also 44% owned by Korean Air), the Chinese are coming to invest in European aviation, a “white knight”, though NOT on par with Etihad, but better than nothing, surely 51 European countries CANNOT all have a national airline), but for some “lucky” European airlines (Hainan Airlines owns 48% of Aigle Azur and looking to buy minority in Air Europa soon, while HCNA owns 35% of Cargolux after Qatar Airways bailed out) it has worked. This comes at a crucial time for tiny airBaltic, which is sadly the launch customer for Bombardier’s CSeries, with the first aircraft due September, 2016 (11 months away), yet the barely profitable airline does not have the money or ability to finance the pre-delivery payments ? With a negative shareholder equity value after losing Euro 190 million since 2010 the airline needs the cash investment to be able to pay for and put into service the 13 + 7 optioned CS300’s worth $US1.45 billion at list (realistically $US 900+/- million at best). This is very sad, this tiny airline (25 aircraft) should never have been selected to be a launch customer for a new commercial airliner, too small, barely profitable, operating old B737’s, no equity, no ability to finance anything and far away in the Baltics with heavy competition from low cost carriers (LCC) and even a EU airline supported by state have taken their toll on local carriers, with many having gone bust or are just hanging on (e.g. Estonian Air which is most likely about to be declared bankrupt when the EU comes out and rules on a EUR 40.7 million state “loan” as illegal, and like Malev, Cyprus Airways, Olympic Airways, it will have to be declared bankrupt, sad but they were cheating other airlines of free competition). A long term sustainable business model seems elusive in the Baltic region, though airBaltic just may have the space and investment to make it happen, in time. It sadly shows the lack of quality in Bombardier’s CSeries order book which desperately also lacks quantity (“firm’ 243, “realistic ” 140), and I am seeing another major screw up, like the Sukhoi SSJ-100 launch customer Armavia of Armenia ? (Not Russia’s flag carrier Aeroflot but Armavia ?), which quickly went bust but there were few takers in Russia for the aircraft when it came out, only until Moscow ‘ordered’ its airlines to use them. Well again, Bombardier has to “hope” for another good outcome next week, otherwise its CS300 launch customer is going to be a problem, the last thing Bombardier needs now is another problem ! Lastly, airBaltic also wants assurances that Bombardier will still be supplying and building the CSeries aircraft in five years time ! after the Airbus ‘fiasco’ now everyone is nervous about the program from existing customers, prospects, employees to investors, and in this environment of “mistrust” how can you realistically sell more aircraft ?

The direction of CS300 launch customer airBaltic ( 8 x B737-300, 5 x B737-500 and 12 x Q400’s) will be decided on October 20th when the Latvian government (98% owner of the airline) review a bid for 49% of the airline from a possible Chinese buyer and there was also interest from a German investor as well. The government has been ‘hoping’ for this for 4 years, as it has been looking to off load airBaltic on someone else.

Last article that dealt with air Baltic and other small national airlines in Europe was June 17, 2015, where I said more trouble for small European national airlines is coming, as surely not all 50 European countries can have a national airline. Now, Estonian Air looks like it will be forced to shut down this year when the EU rules on its EUR 40.7 million loan to the airline, which is most likely ‘illegal state aid’. 


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Air Baltic has had an “interesting” history it grew way too fast under former CEO Bertolik Flick where there was a lot of corruption going with his minority BAS company and everyone watched as airBaltic kept expanding but revenue was not keeping up with expenses and too lait it needed a government bail out and now a very slow path to profitability is underway under very capable CEO Martin Gauss

But this airline right now is just not financially able to take on the role of launch customer for CS300, without major aid from Bombardier, as the Government of Latvia cannot under EU rules help it again with out running into trouble with the EU Commission. So whoever the interested party is that wants 49% of the airline, the Government, employees and Bombardier can only hope its for real and that the cash injection will be enough to see the airline moved forward with its plans to consolidate the rather dismal Baltic market to date (many airline failures) for a region with a declining population, only 6.5 million people in Estonia, Latvia and Lithuania down from 8.0 million in 1992, but with economies that are doing well being part of the EU.

Right now, airBaltic has a great opportunity to capture a big slice of the Ukraine to Russia market as their will be no flights between the 2 countries, or very limited as the tit for tat continues between the two countries on commercial flights, as it stands now Ukraine as of October 25 will not allow Russian commercial airliners to land in Ukraine, airBaltic can fly them through its Riga hub. With capital injection, airBaltic can be the local champion for the Baltic states, it has the strategy and opportunity to take over the local 3 markets, but no easy task to be up against ULCC Ryanair and Wizz Air.


The airline has a checkered past, massive expansion by airBaltic under previous CEO Bertolt Flick brought the airline to the brink of bankruptcy 4 years ago, including a great deal of illegal activity by the minority owner BAS which was associated to Mr. Flick.

With the 1st Bombardier CS300 coming in September, 2016 the airline needs to shore up its finances, as it presently has negative shareholder equity, which makes financing its own aircraft next to impossible, especially when it has 13 orders and 7 options for the CS300 worth $US 1.45 billion at list price, realistically less than $US 900 million with ‘discounts’ and they don’t have the money for it, and will have to undertake sale leasebacks which are generally expensive, especially for a new unproven aircraft in a ‘risky’ country in the Baltics.

This is a poor example of why you need QUALITY airlines as launch customers, and shows that Bombardier just does not have the breath of quality and quantity in its orders book, which is only at 243 but 140 is more like it. Without a financial injection from a new “partner’ airBaltic will struggle with accepting and launching the CS300 and its future will not be so rosy, the B737-400/500’s are old, they cannot compete with ULCC Ryanair’s B737-800’s or Wizz Air’s A320’s on economics.

Between 2010 and 2012 the airline lost Eu 200 million ($US 142+/- million) and slowly the airline has pulled itself into profit in 2013 and 2014, with a combined net profit after tax of Eu 10 million ($US 7.0 million) on combined revenues of EU 625 million ($446 million), a mere 1.6% net profit margin, not the kind of airline that should be launching the CS300.



China’s 6th largest private company China Energy Company (CEFC) bought 10% of Czech Republic’s Travel Service last month, with the shareholding going to  49.92% in the near future. The airline I know very well and worked with for years when it was just a single B737-400 operator and then I helped to set up its LCC Smart Wings. Today it operates 45+ B737-700/800’s and 5 A320’s and is a big ACMI operator, with 5-6 B737-800’s in Canada every winter flying for Sunwings and Air Transat. The airline also has a 34% share in Czech Republic’s national carrier Czech Airlines which interesting enough is 44% owned by Korean Air and sadly like so many European national carriers, is struggling and surely facing the end in the short o medium term as it cannot find a sustainable business model, tried going east to Russia now going west again, the airline has NO strategic direction. It will be interesting how things will work at Travel Service with CEFC there, and especially at Czech Airlines, where Koreans with 44% and Chinese with 34% will need to work together in a foreign country.

Having a Chinese partner does not always work, as is the recent case with Flughafen Lubeck (Lubeck Airport) in Germany, which just filled for insolvency under its Chinese owner, Puren Germany GmbH (owned by PuRen Group), which planned to use Lubeck as hub for a new start up carrier, PuRen Airlines, which to someone with my years of experience in this business raised lots of ref flags as it just did not make sense to me, anyway the project is cancelled, and the second time in 18 months Flughafen Lubeck in  in insolvency, so NOT everything involving the Chinese is “perfect”.


The potential buyer is not known, but rumor is that it is a Chinese buyer, and this would be no surprise as only in September, China’s 6th largest private company, China Energy Company (CEFC) bought 10% of Czech Republic’s Travel Service (50+ B737-800’s/A320’s), and will eventually have 49.92% of that airline, which also has 34% share in Czech Airlines the national airline of the Czech Republic. CEFC also bought major holdings in real estate, beer and media in the Czech Republic.

It seems the Chinese are coming to Europe, and now rumors are that soon Hainan Airlines (147 aircraft + 57 on order) will buy into Spain’s Air Europa (52 aircraft + 41 on order) as well.

Now back to airBaltic, the timing is crucial for a cash injection as CS300 delivery is 11 months away and Bombardier’s pre-delivery payments go up as delivery nears, and airBaltic simply does not have the money for the pre-payments, entry into service rev-up and again NOT an airline that should be introducing a new aircraft type into service, period, but Bombardier sadly had no one else. It is only a little better than the SSJ-100 launch customer, Armenia’s Armavia ? no it was not a Russian airline but an Armenia airline ? what was SuperJet thinking ? well the single SSJ-100 did not stay for very long, but it was a PR disaster for sure.

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Armavia accepted one, had no money for the 2nd one, and eventually went bust in very quick order, you kidding me ? well Aeroflot did not want them, but eventually Moscow made Russian airlines take the SSJ-100, and a few like Moskavia went bust last month Center-South Airlines had its AOC suspended, and Transaero (soon to be declared bankrupt) and UT Air could not take them, some were forced on Red Wings, but to keep it alive Ilyushin Finance Corp (IFC) had to take a 74% share in the airline to keep it a float, it is a gong show with how United Aircraft Corp. (UAC) shifts SSJ-100 aircraft around and “sell” them.

The privatization of airBaltic is now being handled by the Transport Ministry as privatization management company, Prudentia was pulled due to information leaks to a possible German investor, possibly Intro Aviation, which owns City Jet which just ordered western Europe’s first Sukhoi SSJ-100’s for lease (check out my Blog on it) and is selling Austrian InterSky, while looking to buy into Adria Airways of Slovenia in its bid for privatization,  corruption in Eastern Europe is very big, but few complain and yet so typical in Eastern Europe, I know I was there 17 years and I do plan on writing a book about the “wild east’ one day. If Intro Aviation is successful in buying an Eastern European airline like Adria or airBaltic, you can bet its going for the Sukhoi SSJ-100, not good for the airlines, but good for who ever places them with western airlines, as Russians are putting out BIG money to break into the western market !

So in 4 days we will know what future airBaltic has, will it have the money for the CS300’s ? the government cannot fund the airline again, EU rules allowed a one time feeding at the public trough, but that is it, and airBlatic wants to be THE Baltics airline, as neighboring Lithuania has no scheduled airline anymore (Air Lituanica went bust in May/2015 red my blog) and Air Estonia’s future is questionable. as it searches for a sustainable business model to survive, mostly ‘white tail’ flying (contract ACMI flying with its CRJ-900’s and now CRJ-700’s).



Estonian Air (97.34% government owned, 2.66% owned by SAS, founded in 1991, has flown a great deal of different aircraft in its 24 years, from Yak-40’s, TU-134’s, SF340’s, F50’s to having 3 x CRJ900’s, 2 x E170’s (flying for Austrian Airlines) today and most recently 2 x CRJ-700’s came over from Regional One (USA), well get ready to repossess these aircraft. The airline has never found a sustainable business model, and the EC (European Commission) will decide by the end of this year on a EUR 40.7 million ‘loan’ to the airline, which the EU will most likely consider illegal state aid, and demand its immediate repayment, the airline will have to file for bankruptcy.

The playing field needs to be even in Europe, it is why the EU allowed a ‘one time trip to the trough of state aid’ and Estonian Air, Malev, Cyprus Airways are airlines that were caught CHEATING in forced into immediate bankruptcy, the executives of the airlines and accountable government people all knew the rules, but they thought they could find that extra time to keep the airline going until a buyer “white knight” showed up !


I should point out that Estonian Air is at this time waiting for a decision by the end of this year from the European Commission (EC) on a EUR 40.7 million ‘loan’ the airline received from the Estonian government, which in my opinion will go against Estonian Air, meaning it was illegal state aid and it will then like so many airlines before it (e.g. Malev, Cyrpus Airways, etc.) that accepted more government bail outs than allowed by the EC, it will be forced into bankruptcy.

The Estonians know its coming and are already forming another new state owned airline AS Nordic Aviation Group (NAG), with a capitalization of EUR 40.7 million, the same amount over which Air Estonian is about to be shut down on. The Estonian government is playing games here, they tried to protect Estonian Air will illegal aid, which hurts free competition, in this case airBlatic and when caught they go out and set up another state owned airline ? the EU has to investigate, once a “cheater” is caught, the EC should not allow another state airline to be formed and live of state aid again !

AirBaltic’s CEO Martin Gauss (ex-CEO DBA and Malev) is ambitious and has launched 7 new routes in September from Riga (Latvia) and Vilnius (Lithuania) as it wants to capture those markets, but its new routes like Riga to Radom (Poland) are questionable, there is a reason there is NO airline serving Radom, the others are ok, only Vilnius to Brussels and Vilnius to Helsinki face any competition directly (Brussels Airlines and Finnair), but is the traffic even there ? the market is highly contested by ULCC heavy weights Wizz Air and Ryanair (50%+ of market out of Vilnius) and the 3 countries (Estonia, Latvia and Lithuania) have seen local population go from 8.0 million in 1992 to 6.5 million as mostly the young have emigrated to western Europe.

As for the CS300, airBaltic CEO Martin Gauss is also needing reassurance from Bombardier, he is waiting on a clear statement from Bombardier on the true status of the program, “I want certainty, not only on deliveries, which I think they will achieve, but that they will still be supplying and building these aircraft in five years time”, seems everyone know has doubts, worries and reservations about the CSeries program, the situation is getting worst and I am sure airBaltic has a fall back position, as noone can say for sure that a year from now the aircraft will be produced.

We shall see and watch events with interest, once again thanks for reading my blog, cheers.


About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 30+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (50+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems in the business for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com I write a lot of Articles and Posts on LinkedIN: https://www.linkedin.com/in/tomas-chlumecky-3200a021/


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