Estonia to set up new national airline

Estonian Airi lennuk.

PHOTO: Toomas Huik

The Estonian government is about to set up a new company that would take over the role of national flag carrier if the European Commission makes a negative ruling as regards the lawfulness of state aid for Estonian Air.

The size of the investment into stock capital is 40.7 million euros, the evening news of Estonia's ETV television said.

«Estonia must be ready for a positive and negative decision alike, hence the government entitled the minister of economic affairs and infrastructure to establish a state owned company with a stock capital of 40.7 million euros. The main goal of the company to be established is to set up an airline group and build up a structure within the group in order to be able to serve the air services market of Estonia and provide services to other airlines,» Rasmus Ruuda, chief of the PR department at the Ministry of Economic Affairs and Communications, told BNS.

Ruuda said that commercial activities and production related activities will be separated within the group. This is necessary to be able to perform flights for other airlines, which will enable the company to increase volumes and improve profitability. «This is one of the principles too thanks to what Estonian Air has broken into the black in recent months,» he said.

Money for the investment into the new company has already been set earmarked in the state budget, Ruuda said. Previously this money was meant for recapitalization of Estonian Air if the decision of the European Commission as regards state aid is positive. «If the decision as regards state aid is positive Estonian Air will be merged with the new group and for the paid-in capital Estonian Air will pay back the loan given by the state, also in the amount of 40.7 million euros,» Ruuda said.

«If the decision about state aid is negative the group will itself start ordering flights to serve the Estonian market, to ensure connections for Estonia with the outside world on the necessary level,» Ruuda said. «The government considers the existence of a local airline based in Tallinn very important. The wellbeing of the Estonian economy depends on it, its effect on GDP being almost one percent, along with tourism and our people's opportunities to travel,» he said.

Besides the government will reduce possible claims related to Estonian Air by establishing a company with a stock capital of 32 million euros that will take over from the Canadian export credit agency the credit agreement concerning Estonian Air planes together with deposits. The company will still be able to lease aircraft to both Estonian Air and other interested parties on the market, and in accordance with the European Commission's decision the assets can be incorporated into a bigger holding company to earn profit or use them to maintain connections necessary for Estonia, Ruuda said.

The Commission has not yet decided about the lawfulness of state aid for Estonian Air.