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Aeropolitics, Airline Restructuring, Bombardier, Commercial Airliners, Other Aviation Issues, Regional Airlines, UPDATES

UPDATE: The end of Estonian Air, and airBaltic’s new capital and it’s “undesirable” and contentious new investor and Russia’s SSJ-100 SuperJet desperate and murky measures to sell into the Western European market: As predicted along time ago, Estonian Air will shut down its operation tomorrow November 8, 2015 after today’s EU Commission order to the Estonian Government to recover the Euro 85 million ($US 92 million) in “illegal” state aid given to the state owned airline the past 5 years. This is the 2nd airline this year (Cyprus Airways back in January was forced into liquidation) that had to close down after the EU ruled that the airlines received state aid beyond the “one time, last time” guidelines for restructuring aid. Estonian Air was a cash burning operation since 2010, going through Euro 87.6 million ($US 95 million) in 5 years, with a current fleet of just 3 x CRJ-900’s and 2 x CRJ-700’s, an inept underachiever for 5 years that even according to the EU Commission, did NOT have a credible restructuring plan that ensured it will not be going back to the trough of public taxpayers money to keep flying. The airline had NO sustainable business plan, other than “white label” flying (ACMI operations) for third party airlines, which are not a long term sustainable business. Realistically, Estonia with only 1.3 million people is a small country and aviation market (only 44nm from Helsinki, a big northern hub) and Europe’s 51 independent countries cannot ALL have their own national airlines, it is just not economically viable, and state aid is NOT an option, it distorts competition against private airlines. Malev’s closure in 2012 showed that when the home airline does close down, new airlines and routes are picked very quickly by other airlines. BUT the stubborn Estonians already have Plan B in place for weeks, the same day Estonian Air shuts down, Nordic Aviation starts up and ready to use Euro 40.7 million of taxpayers money and Adria Airways AOC and throw it all away again a few years down the road, as some people will just never learn from their mistakes ! Meanwhile next door in Latvia, the state owned airline, airBaltic is about to get a Euro 80 million ($US 87 million) state cash injection to shore up its negative Euro -75 million ($US -82 million) shareholder equity so it can borrow money to finance $US 1.3 billion for the 12 ordered and 7 optioned Bombardier CS300’s, again the EU Commission will have to investigate as this is state aid to bolster a national airline, and it does affect competition. Also again there is some ‘funny’ stuff going within the airline and government has a dubious new German investor (Ralf-Dieter Montag-Girmes), very close to the Russians and their aircraft industry, buys 20% of airBaltic for Euro 52 million (US$ 57 million) valuing the little airline at a ridiculous $US 285 million, and he has been called the “least bad option” and a “undesirable” investor with “potential security risks” by the recently fired Latvian Transport Minister, Mr. Matiss. The Russians are quietly targeting airlines like airBaltic, VLM, City Jet, Greenland Express, Adria Airways, etc. for the Sukhoi SSJ-100 SuperJets by buying into these airlines through intermediaries, investing in them or management buyouts or going to bed with their existing owners or investors as billions of dollars are going into the SSJ-100 program and its ultimate success lies in breaking into the western commercial aircraft market, and it must open the door for the Irkut MC-21 narrowbody airliner due in 5 years time as well. Russia it is ready to do ALL it can, huge lease and price reductions to bribes or buying “influence” in small European airlines to place its SSJ-100’s, which has had 7 airlines go bankrupt while 8 customers which ordered 77 SSJ-100’s with 29 options have not been heard from in a long time, its all murky with the Russians, just beware !

I have repeatedly said that Estonian Air will become the next European airline forced to shut down its operation because the airline repeatedly benefited from illegal state aid for its existence. (READ BLOG of JUNE 17, 2015)

Well today, November 7, 2015 the European Commission ordered Estonia to recover the state aid given to Estonian Air over the past 5 years, which amounts to Euro 85 million plus interest and it cannot receive the planned Euro 40.7 million the state was planning to undertake.

Estonian Air will shut down on Sunday, November 8, 2015, joining other airlines that were forced to shut down after the EU Commission investigated and found that state aid was used to distort competition, most recently Cyprus Airways in January of this year and airlines like Malev (Hungary) in 2012 and Olympic Airlines (Greece) in 2009. Yet, on the same day, another state owned airline, Nordic Aviation will take to the skies in Estonia using Adria Airways AOC for now, bank rolled by the Euro 40.7 million that the state wanted to give Estonian Air ! what a crazy world we live in.

By the way Adria Airways is being sought by Germany based Intro Aviation in its privatization. Intro Aviation is the current owner of Ireland’s CityJet which just ordered up to 25 Sukhoi SSJ-100’s though it code shares with AF/KLM and did own VLM until it was bought in a management buyout, and immediately wanted 12 SSJ-100’s, too many dots to connect, but know that Russia is going ALL out to sell the SSJ-100 in western Europe anyway it can (e.g. bribes, investing, backing investors to buy airlines to backing MBO’s, offering low price and low leases) since many white tails are sitting today in Russia.

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estonian22Lao Central received its first Sukhoi Superjet 100 this month. Credit: Sukhoi

Estonian Air (photo above left) enters the history books tomorrow, but same day the Estonians will launch Nordic Aviation with the Euro 40.7 million that they wanted to give Estonian Air, the nice to play with taxpayers money. Now, probably not noticed by many, but Russia’s is very aggressively trying to get into the European commercial aircraft market with its Sukhoi SSJ-100 (photo above right of failed Lao Central Airlines, one of 7 foreign and Russian airlines to go bust with it) which has not done well contrary to Russian claims.

Many white tails this past summer (40+), now maybe 70 are in service out of almost 100 delivered, yet it is nothing special, other than it is really cheap now as Russia subsidizes the program very heavily. Now with financial strapped UTAir (bailed out by Russian Government) and bankrupt Transaero cancelling their SSJ-100 orders, there are many SSJ-100 available for quick delivery as Sukhoi has a major problem with “white tails” (aircraft produced but nowhere to deliver them to and hence kept white till a buyer is found).

To help sell the aircraft the Russians are out “influencing” small European airline owners, investors and buyers with big money. Cheap is not always good, you pay for it in higher operating costs, less reliability and eventually in lower resale value, do the real math and you see the difference, eliminate political risk and buy an E190/195 or CRJ-900 and you will sleep better at night. Greenland Express is looking at 5 x SSJ-100’s because it does not have the money for anything else, and most likely will not get off the ground or stay in the air for any long period of time, not a serious venture. 

The recent CitiJet order for up to 25 SSJ-100’s is a case in point, owned by Intro Aviation, the CEO of CitiJet now calls it a “game changer” ? see what money does, also Intro Aviation (owned by Hans Rudolf Wohrl) is now trying to get Adria Airways of Slovenia in its privatization, with 6 x CRJ900’s its perfect for SSJ-100’s ? and its former VLM operation (bought through a MBO by Arthur White but who funded it ? Russians ?) which is also interested in the SSJ-100.

Mr. Wohrl is an old friend of CEO Martin Gauss of airBaltic from the old-dba (Deutsche BA) days when Mr. Wohrl used to own dba and Gauss was running it before he went to Cirrus and then Malev, a small world indeed, too close for comfort.

Now last airBaltic took on German investor Mr. Ralph Dieter Montag-Girmes of ARQ Holdings as a 20% owner who is very close to the Russian aerospace industry from his 1990’s in its “privatization’ process, and through SAAL (South American Aircraft Leasing-subsidiary of International Aircraft Leasing Holding) which ordered 15 x AN148/158’s in 2012, thinking it will replace BAe 146’s ? really ? no one in their right mind will touch a Russian airliner with Russian engines in the west, hence why customers for the AN-148/158 are Cuba and North Korea.

In fact, Latvia’s Transport Minister, Anrijs Matiss was sacked by the Prime Minister for describing Mr. Montag-Girmes as undesirable and a potential security risk and the agreement with him as “the least bad option”, says novels about what is happening out there with current small airline investors and privatization plans, you have to be blind not to see what the ‘game plan is’.

Anyway, one can see some strategic positioning of owners, investors and buyers of airlines, as Russia is desperate to make this program work, as it is to open the doors to the west for its Irkut MC-21 narrow body due in 4+ years. There is nothing interesting with a MADE IN RUSSIA label, not a sign of high quality, just low price/low quality the Russians know it, but they know money talks, its how the country works, bribes are a normal part of business with Russia, I know I spent 20 years in Eastern Europe.

Look at CityJet’s 25 aircraft order, anyone who calls the SSJ-100 a “game changer” is greatly exaggerating, just paid advertising/PR, as it has nothing unique other than a very low price due to Russian subsidies on price, leasing and financing (life cycle costs also include operating costs for the life of the aircraft and the eventual resale value) and off course some thank you payments. CityJet’s CEO says he knows so much about the SSJ-100 he could have a PhD on it, well that may be true but then he sure does not know the E190/195-E1/E2 or the MRJ, if he bought the SSJ-100, as no way in hell can you justify the SSJ-100 against them when you take in the whole life of the aircraft (buy/lease it, operate it, try and sell seats on it and then try and sell or re-market it).

Let’s hope that before the aircraft arrive code share partners Air France and KLM and the people of Europe, especially the Irish, Brits, Dutch and French will have something to say about that through protests, boycotts or ideally cancellation of code share by AF/KLM, hopefully the European consumers will say Nyet Nyet SuperJet!

The Sukhoi is not a good aircraft, ready my previous blogs, it will also become obsolete in the next 3 years with the Embraer E190/195-E2’s coming as well as the MRJ and the CSeries, it is that simple, when airlines are ordering the next generation commercial airliners in the 80-130 seat category, why the heck would you buy a SSJ-100 ? unless you are getting something under the table for yourself as it surely will NOT benefit the airline economically in any way, in business RISK is to be avoided or minimized, in this case the political risk of more sanctions make such an acquisition highly questionable on economics, so why buy ? $$$ for someone other than the airline of course.

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The Estonian Air was burning cash , tax payers cash in fact since 2010 (Euro 87.6 million) with NO sustainable business model that did not require public money for survival, the airline was down to 3 x CRJ900’s and 2 x CRJ-700’s with 1 x E175 that was going back to Finnair. In fact the market out of Estonia has been so bad that Estonian’s strategy was based on “white label” flying (ACMI flying) for other airlines in Europe.

The airline’s CEO Jan Palmer ‘hoped’ for change, but as I have said before, over and over “hope is NOT a strategy”, and he and the Estonian government knew that feeding at the trough of state aid/public money year after year  was only allowed once a 10 year period, the “one time, last time” and they knew they would be caught by the EU Commission eventually.

The airline had plenty of opportunity to get its act together, if you cannot turn around an airline after 5 years, then it deserves to go bust, either management was incompetent or the Estonian market is just too small (population 1.31 million and GDP per capital of $US 17,425) to sustain its own national airline, NOT every one of Europe’s 51 independent countries can support its own national airline, it is that simple.

The airline was a major underachiever, and while it is always sad for us airline observers to see any airline fade into the history books, we also know that aviation the airline business is tough, and while the profit equation is simple (profit = revenue per available seat Km or RASK (yield x load factor) > CASK (cost per available seat Km)), few can implement and execute this simple formula, so many variables are beyond the control of the airline’s management.

The sad thing is that Estonia, has already a Plan B in place, to set up another national airline, Nordic Aviation with the planned Euro 40.7 million that was going to go to Estonia Air if the EU Commission by the grace of god was going to make a positive decision on this ruling. The airline will start on November 8, 2015 the same day Estonian Air shuts down and will use Adria Airways AOC and ticketing to start operations with some chartered Adria Airways aircraft as well as aircraft from Carpatair’s (Romania) Fokker F100’s, Regional BMI (UK) ERJ-145’s and others. An extensive network from Tallinn will be maintained to Amsterdam, Copenhagen Brussels, Stockholm, Oslo, Moscow, St. Petersburg, Vilnius and Munich.

The real question is will this new airline have a better chance of survival ? the answer is no, the market has lots of competitors, the Estonian market is small and Helsinki is only 44 nm away with connections to anywhere in Europe, North America and Asia, its a pipe dream that many European countries have, but in the end the small nations of Europe will see they don’t have a national airline and they don’t need one anymore, especially those that live of taxpayers money.

The country does not need a national airline of its own, that is old thinking, and a waste of taxpayers money.  It is interesting to note that Adria Airways (Slovenia) is helping out, as it is in the middle of its own privatization that will determine its own future, there Hans Rudolf Wohrl of Intro Aviation the owner of Citi Jet that just ordered Sukhoi SSJ-100’s and Inter Sky which is for sale and having its AOC pulled, is trying to takeover the airline, and most likely wants to bring the Russians in and place Sukhoi SSJ-100’s into service there as well.

With Russiapouring billions of dollars into the program it is desperate to place the SSJ-100 with western airlines at any cost, and pay big money to anyone that can make it happen, (aka bribes) as any airline executives know the risk is high and risk is something all real executives try to minimize in their business, political risk of buying any aircraft from Russia under current tensions and sanctions and eventual MH17 findings is huge if you are looking at a 5 to 15 year commitment on anything from Russia, just don’t do it, up front it may look good but a few years down the road you will regret the day you signed for the SSJ-100.

Meanwhile, other airlines can swoop into Tallinn very quickly, like Finnair, or airBaltic, Wizz, Ryanair, lots of choices these days, we saw that in Budapest after Malev’s collapse in 2012, lots of new flights and airlines moved in very quickly.

Anyway, Estonian owners of local firm Infortar which owns Tallink Ferry Group are ready to roll the dice and “take a chance” on Nordic Aviation along with the Estonian government, and what will the EU Commission do next as the Estonian government once again distorts competition ? and challenges it again with a state owned airline backed by tax payers money. If the Estonians do not like to be told what they can or cannot do within the EU, they should not have joined the EU.

Anyway some people never learn, seems aviation seems to attract insane people (“Insanity, doing the same thing over and over again and expecting different results”, Dr. Albert Einstein, 1879-1955).

The EU Commission is also going to have to investigate the latest moves by Latvia’s government to pump another Euro 80 million ($US 87 million) into its 99.8% owner airBaltic, as that money is to help it a shore up its negative shareholder value to attract financing for new Bombardier CSeries aircraft, to make it more attractive for a new strategic investor ? well that argument can be used by most airlines in Europe today !

It’s new investor, German Ralph Dieter Montag-Girmes was described as “undesirable” and a “security risk” by Latvia’s recently fired Transport Minister, who knows what he is talking about, but airBaltic and Latvian Government are desperate for new cash they will take it from anyone, and here the door is open for Russia and its cronies in Europe to step in and open the way for the SS-100 and MC-21, Europe beware. The Russians are used to bribes to get things done, “Made in Russia” means zip to the west, the only way to sell anything is to make it cheap and payoff decision makers, though the exceptions are their helicopters and fighter aircraft, which are world class, but anything commercial ?

We all remember the YAK-40, TU-154, IL-86, etc. all crap and dangerous. I am surprised the Iranians are looking backwards and looking at buying a whole lot of SSJ-100’s when they can look forward today and buy western aircraft like the E190/195-E2’s, CRJ-900’s, MRJ’s, look the only countries that have bought Russian aircraft in the past 10-15 years were North Korea, Cuba, Iran, Laos, Armenia, Indonesia and CIS countries, that says it all. The SSJ100 will be outdated in 3 years when the E2 come out from Embraer and the MRJ is certified, so buy an aircraft today that will NOT be competitive in 3 years, how smart is that ?

The list of SSJ-100 airlines that went bankrupt or cancelled their orders is very long given less than 100 have so far been delivered, the list says novels about the quality of SSJ-100 orders, basically anyone can place an order, little down if any and who cares about your financial position, SuperJet is desperate to move white tails, just look at the orders that never were and orders that may never be, its all smoke and mirrors : (NOTE 7 airlines went bankrupt and 8 customer who ordered 77 + 29 options we have not heard from in a long time).

  1. Lao Central Airlines (ordered 1, went bust)
  2. Aeroflot (returned the 1st ten light versions)
  3. Sky Aviation of Indonesia (ordered 12 + 3 went bust)
  4. UTAir of Russia (received bailout from Government, cancelled orders)
  5. JSC Finance Leasing of Russia  (ordered 10 status since 2012 unknown)
  6. Pearl Aircraft Corp. of Bermuda (30 ordered and 15 optioned, no word since 2012)
  7. Willis Lease Finance of USA (ordered 6 plus 4 optioned, status unknown since 2012)
  8. Aviotech of India (ordered 10 + 10, status unknown since 2011)
  9. Yamal Airlines of Russia (ordered 10, status unknown since 2011)
  10. Taki Air of Tajikistan (ordered 2 + 2, status unknown since 2011)
  11. Transaero of Russia (ordered 6 + 10, went bankrupt last month)
  12. Aerolease of Bahrain (ordered 4, status unknown since 2013)
  13. AviaAM Leasing of Armenia (ordered 5, status unknown since 2013)
  14. Bek Air of Kazakstan (ordered 7 at Paris Airshow 2015, status unknown)
  15. Armavia of Armenia (ordered 2, went bust as launch customer in 2011)
  16. Kartika Airlines of Indonesia (15 + 15, went bust)
  17. Blue Panorama of Italy (8 + 4, went bust)
  18. Kuban Airlines of Russia (12 ordered in 2011, went bust)
  19. Moskovia Airlines of Russia (1 + 2 ordered, went bust aircraft went to Red Wings of Russia)
  20. Greenland Express of Denmark (5 optioned in 2015) ?
  21. CityJet of Ireland (leasing 25 for code share operations for Air France and KLM) ?
  22. VLM of Belgium (leasing up to 12, small scheduled airline ACMI operator) ?

Lastly, the airBaltic money is a BAILOUT, for without it they are stuck in the mud, as they have old B737-500/300’s and a negative equity position of Euro 75 million, with no chance of getting financing for new aircraft, more on this in my next Blog, as there is some ‘funny’ stuff going on in Latvia and at airBaltic, again ! never dull in Eastern Europe.

So Long Estonian Air, you are not the last national airline to disappear, many more to come in the next 2 years for sure.

Till next time, thank you.

MORE on Sukhoi SSJ-100 in previous blogs

 

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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 25+ 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 (45+ 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 be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

Discussion

2 thoughts on “UPDATE: The end of Estonian Air, and airBaltic’s new capital and it’s “undesirable” and contentious new investor and Russia’s SSJ-100 SuperJet desperate and murky measures to sell into the Western European market: As predicted along time ago, Estonian Air will shut down its operation tomorrow November 8, 2015 after today’s EU Commission order to the Estonian Government to recover the Euro 85 million ($US 92 million) in “illegal” state aid given to the state owned airline the past 5 years. This is the 2nd airline this year (Cyprus Airways back in January was forced into liquidation) that had to close down after the EU ruled that the airlines received state aid beyond the “one time, last time” guidelines for restructuring aid. Estonian Air was a cash burning operation since 2010, going through Euro 87.6 million ($US 95 million) in 5 years, with a current fleet of just 3 x CRJ-900’s and 2 x CRJ-700’s, an inept underachiever for 5 years that even according to the EU Commission, did NOT have a credible restructuring plan that ensured it will not be going back to the trough of public taxpayers money to keep flying. The airline had NO sustainable business plan, other than “white label” flying (ACMI operations) for third party airlines, which are not a long term sustainable business. Realistically, Estonia with only 1.3 million people is a small country and aviation market (only 44nm from Helsinki, a big northern hub) and Europe’s 51 independent countries cannot ALL have their own national airlines, it is just not economically viable, and state aid is NOT an option, it distorts competition against private airlines. Malev’s closure in 2012 showed that when the home airline does close down, new airlines and routes are picked very quickly by other airlines. BUT the stubborn Estonians already have Plan B in place for weeks, the same day Estonian Air shuts down, Nordic Aviation starts up and ready to use Euro 40.7 million of taxpayers money and Adria Airways AOC and throw it all away again a few years down the road, as some people will just never learn from their mistakes ! Meanwhile next door in Latvia, the state owned airline, airBaltic is about to get a Euro 80 million ($US 87 million) state cash injection to shore up its negative Euro -75 million ($US -82 million) shareholder equity so it can borrow money to finance $US 1.3 billion for the 12 ordered and 7 optioned Bombardier CS300’s, again the EU Commission will have to investigate as this is state aid to bolster a national airline, and it does affect competition. Also again there is some ‘funny’ stuff going within the airline and government has a dubious new German investor (Ralf-Dieter Montag-Girmes), very close to the Russians and their aircraft industry, buys 20% of airBaltic for Euro 52 million (US$ 57 million) valuing the little airline at a ridiculous $US 285 million, and he has been called the “least bad option” and a “undesirable” investor with “potential security risks” by the recently fired Latvian Transport Minister, Mr. Matiss. The Russians are quietly targeting airlines like airBaltic, VLM, City Jet, Greenland Express, Adria Airways, etc. for the Sukhoi SSJ-100 SuperJets by buying into these airlines through intermediaries, investing in them or management buyouts or going to bed with their existing owners or investors as billions of dollars are going into the SSJ-100 program and its ultimate success lies in breaking into the western commercial aircraft market, and it must open the door for the Irkut MC-21 narrowbody airliner due in 5 years time as well. Russia it is ready to do ALL it can, huge lease and price reductions to bribes or buying “influence” in small European airlines to place its SSJ-100’s, which has had 7 airlines go bankrupt while 8 customers which ordered 77 SSJ-100’s with 29 options have not been heard from in a long time, its all murky with the Russians, just beware !

  1. Nice propaganda piece. Most of these airlines operated majorly western jets which you claim were bankrupted by SSJ. And the Iranians ,they have strong national security concerns with Western equipments.

    Like

    Posted by MSM | November 14, 2015, 11:06 am
    • Thank you, but actually most of the bankrupt SSJ-100 operators had the SSJ-100 as only aircraft (e.g. Armavia, Moskavia, Sky, Lao Central, etc.) and as for Iranians having western security issues with the west, the SSJ-100 is 40% by value western content and the MC-21 will be as well, so on both points, you are wrong, sorry.

      Like

      Posted by Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow | November 14, 2015, 3:15 pm
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