Airline plan proven to work

Photo: Liis Treimann / Postimees

In three months, Estonian Air managed to cut losses by €4m; June being first profitable month in nearly three years.

EA’s 2013 first half return on sales amounted to €35.7m – a 19 per cent decrease year-on-year. However, net loss for the same period was €5.8m, which is 61 per cent less than in 2012. As a slightly bigger loss was expected for the first half, EA is actually a bit ahead of the plan.

«The results show that our restructuring plan is working,» said the EA CEO Jan Palmér. «We have now executed the major changes, within the company; so we can proceed with operative plans to ensure sustainability.» According to him, only some minor changes are yet in the pipeline – such as flight frequency and schedule.

Worse in winter

Even if, as expressed by Mr Palmér, EA may now be called an «ordinary airline», the June profits mean not that the company is out of the red for good. «In aviation, one must adjust daily; such are the demands of market situation,» said Mr Palmér. «Although April, May and June were good months and the third quarter is promising to be positive, winter will again bring hardships for airlines; therefore, the second half of 2013 will still be in the minus – albeit, a much shorter minus than the first.»

Jan Palmér hopes that 2015 will be profitable for EA, at last. «This year, profit will evade us – if for the simple reason of such a heavy loss in first quarter. And I am not so sure about profits for 2014; but the loss will [then] surely be strikingly smaller than this year. But we are planning for 2015 to be profitable,» said Mr Palmér.

By then, it is planned to start using new types of planes, with various options now under discussion. «Right now, we are using two types of planes: Bombardier CRJ900 and Embraer E170. Costs-wise, it would be most effective to only fly one type of planes, and that is the direction we are headed,» assured Mr Palmér.

State aid no longer needed

By two first quarters of 2013, loan commitments have been reduced by 8 per cent; even so, year-on-year, debt load is 15 per cent higher this year. In April EA sold its building to Tallinn Airport, using the proceeds to pay off debt. By the said transaction, balance sheet total was reduced by 11 per cent.

Also, EA subsidiary Estonian Air Regional was sold to Fortaero BBAA OÜ active in business aviation, headquartered in Moscow. Further sales of assets not related to principal activity are planned.

This year, EA has received state aid of €24.1m. «We hope not to need any more state support. We do have a contract with the option of getting further €12m aid this year; however, we will do our very best not to need it,» said Mr Palmér.

So far, there is no feedback from the European Commission regarding the legality of EA state aid. According to Mr Palmér, this will probably be a matter for the autumn, as the holiday season comes to an end. «In their assessment, they will be looking into our restructuring plans and they will see how we will be able to implement these, whether we will gain control over our finances,» said he.

EA hopes the European Commission will make its decision in first half of 2014.

EA is not planning further cuts and lay-offs. «Naturally we will have to treat all costs very prudently and carefully, but there is no more room for cuts. We have brought the costs down 50 per cent, almost; the staff also being smaller by half,» stressed the CEO.

Due to structural changes, EA has arrived at a place where increase in flights verily equals increase in income.