The Estonian government on Thursday took cognizance of the restructuring plan of the state-owned airline Estonian Air, which calls for recapitalization of the company with 40.7 million euros.
Govt to put Estonian Air state aid application before Commission
2nd May 2013, 15:17
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The corresponding application for permission to give state aid is to be filed with the European Commission by Minister of Economy and Communications Juhan Parts.
According to the plan, Estonian Air would be downsized to the point where it is capable of serving the destinations that are essential for Estonia, being at the same time financially independent as a business, the government communication office said. Estonian Air is expected to swing to profit in 2015.
The rescue aid loan provided to the airline and topped up since December 2012 will have to be repaid in the course of the restructuring. Prior to that Estonian Air received capital on market terms.
Besides the government decided to lend Estonian Air 12.1 million euros to ensure direct flights to hubs that are important for Estonia. The money comes as part of a total credit volume of 37 million euros agreed in the government on Feb. 28, 2013.
"We dare say at this point that the plan is grounded and in our opinion permission should be given," Minister of Economy and Communications Juhan Parts said at the government press conference. "Of course it's a long and complex process."
"The business strategy of Estonian Air is a minimalist adaptation strategy the central part of which is that the company must be financially sustainable in the future," Parts said.
The European Commission announced in mid-April that it has extended the scope of an in-depth investigation opened in February 2013 into public support measures in favor of Estonian Air to include the decision by Estonia on Feb. 28, 2013 to increase a previous rescue loan by 28.7 million euros.
The Commission said it will investigate also whether the measure is in line with EU state aid rules. The extension of the investigation will give interested third parties an opportunity to comment on this additional measure, and the extension does not prejudge the outcome of the investigation.
It said that since 2009, Estonian Air has benefitted from several public interventions, including three capital injections totaling over 57 million euros. In 2012, Estonia notified of its intention to grant a 8.3 million euros rescue loan to Estonian Air. The Commission opened an in-depth investigation because it had doubts whether these public interventions were in line with EU state aid rules for the airline industry and for rescuing and restructuring companies in financial difficulty.
These rules foresee, in particular, that a company can receive rescue aid only once in ten years, to avoid that ailing companies are kept artificially alive with taxpayers' money. In certain circumstances, the rescuing and restructuring guidelines also allow rescue aid for urgent structural measures that are necessary to ensure the survival of a company in difficulty.