Yesterday brought clarity concerning the amount of money needed by Estonian Air to restructure itself into a small airline, only going to some select destinations: €37m, €8.3m of which it has already received as loan.
Loan goes to settle Taskila’s contracts
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By government decree, the company also gets €16.6 of additional loan money. As the sum total needed is €37m, we conclude that about €12m is about to be loaned in months to come.
In a nutshell, the Estonian Air (EA) situation is all about cost cutting and getting rid of unnecessary contracts… and planes. A year ago, EA’s former leadership ordered three new Embraer-type passenger planes, one of which is already standing by, boasting EA colours.
And also: it’s quite possible the European Commission declares Estonia’s activities in helping EA as breach of state aid rules. In that case, to continue would be difficult indeed. In European Commission, investigations are underway.
As told Postimees, yesterday, by EA’s chairman Erkki Raasuke, €8m of the €16m plus loan will go to cancel contracts. «The money allotted by state helps settle some complicated loan obligations,» said Mr Raasuke. «A large share of the money will cover premature return of unnecessary planes.»
In other words, with compensation money offered, the leasing company is willing to find owners for the new Embraers ordered by former EA chief Tero Taskila. According to some sources, contracts entered by Mr Taskila were extremely generous i.e. damaging to EA.
Right now, EA possesses ten planes. The leadership says that only five are needed. EA’s press representative Ilona Eskelinen said that of the three Saab turboprops, one has been returned to the leasing company, and the other two will go at the end of March. EA’s only and lonely Boeing is currently standing idle, to be returned to leasers in June. And then there are the three Bombardiers owned by EA and four leased Embraers. According to Ms Eskelinen, the company is seeking ways of renting two Embraers out together with crews.
EA’s new Swedish CEO Jan Palmér has succeeded in somewhat improving the company’s results. However, it’s not as good as it needs to be, yet.
Mr Raasuke said that half of government money goes to continue business activity. According to him, EA is half way with restructurings – both time wise and in substance.
As we remember, restructurings were kicked off by sacking Mr Taskila, who thought a small company would not survive and went for aggressive extension. To which, among others, the Andrus Ansip lead government also agreed, by approving financing of aggressive extension plan, in fall of 2011. That took €30m, and, as now evident, another €37m will be poured in to heal the bleeding caused to national flag carrier by the extensions.
Even if, officially, the EA manoeuvrings are called restructuring, it could as well be named a shrinking strategy. Les labour costs, less planes, fewer destinations – but at least EA will make ends meet. «Whether EA will live or die, time will tell. Right now we’re implementing restructuring plans, aiming to get in shape by June-July. Then, we can assess vitality,» said Mr Raasuke.