Sa, 2.12.2023

Special audit to be conducted in loss-making Nordica

Nordica flight preparations in Tallinn airport.
Nordica flight preparations in Tallinn airport. Photo: Eero Vabamägi

Minister of Climate Kristen Michal has tasked the supervisory board of Estonia`s state-owned airline Nordic Aviation Group with conducting a special audit to assess the company`s activities in the period from the beginning of 2020 to the end of July 2023, including to identify the reasons for the negative economic situation.

According to preliminary data, the consolidated six-month turnover of Nordic Aviation Group, or Nordica and XFly, was 54.9 million euros and the loss for the reporting period totaled 7.2 million euros.

«The initiation of the special audit is motivated by the current situation, where Nordica`s financial performance has turned strongly negative in a very short period of time,» said the minister of climate, who by virtue of office performs the role of the general meeting of shareholders of Nordic Aviation Group. «In parallel with the actions aimed at turning the company around, we also want the supervisory board to identify the causes of the situation in the course of the independent special audit. The special audit must also identify what is behind the company's failure to meet its profitability targets,» the minister emphasized.

Therefore, on Aug. 1, Nordic Aviation Group started a process to turn the company around. An international consultancy company was hired, whose task is to turn the aviation company onto the path of profitability.

«In the past few months, the economic situation of Nordica has deteriorated sharply, and the company`s revenues have turned out to be considerably lower than expected. In turn, the costs significantly exceed the revenues,» said David O`Brock, the chairman of the supervisory board of Nordic Aviation Group. «The situation in the aviation market is very difficult -- there`s a delay in leased aircraft with which Nordica is supposed to service its clients, there is a deficit in both workforce as well as equipment; the costs of all inputs have risen. All those aspects have turned Nordica's business onto a path of loss.»

David O`Brock, the chairman of the supervisory board of Nordic Aviation Group.
David O`Brock, the chairman of the supervisory board of Nordic Aviation Group. Photo: Mihkel Maripuu

Last week, the CEO of Nordic Aviation Group, Jan Palmer, submitted a letter of resignation to the supervisory board. The board approved the resignation of the CEO on July 26.

The board has appointed Remco Althuis, the lead of the turnaround consultancy team, as the company`s new interim CEO. Althuis has previously worked in managerial positions in KLM, Etihad Airways and Air Seychelles.

According to the minister of climate, the supervisory board of Nordic Aviation Group confirmed that a tender to find the party to conduct the special audit will be announced as soon as possible, with the aim of starting the special audit as early as September. The first interim report will be submitted within one month, by the end of September. The deadline for the final report of the special audit is no later than three months from the signing of the contract, meaning no later than the end of November.

Among other things, the special audit must establish whether appropriate feasibility analyzes were done before Nordica decided to resume certain flights, open new routes or conclude new service contracts. Also, whether the goal of making a commercial profit set in the owner`s expectation was taken into account when opening the routes or concluding the contracts.

The task of the special auditor is to assess the implementation of the group`s business plan submitted in the application for state aid and the impact on the company`s financial results of the management decisions taken by the supervisory board and the management board since the beginning of 2020. In addition, the special audit must include an overview of all the business-related contracts concluded during the period under review.

The conduct of the special audit will be organized by Nordic Aviation Group, and the special auditor will be found in a tender procedure.

To ensure the company`s sustainability, the supervisory board in coordination with the shareholder decided to bring international aviation expertise into the company in order to turn the company`s business onto economically solid ground. The supervisory board has hired international aviation consultancy Knighthood Global, whose task is to restructure the company`s business, said the chairman of the supervisory board.

The contract with the international consultancy is signed for a period of up to six months, during which all operations and cost structure of the company will be revised, O`Brock said.

According to the chairman of the supervisory board, an additional reason for the current status of the company, besides unfavorable external conditions, is an overly optimistic expansion strategy adopted late last year, which in turn has negatively affected the financial situation of the company.

«The board expects the turnaround team that started on August 1, to make detailed suggestions for turning the company on the path of profitability in the nearest future, by latest by the end of September. We expect tangible results, including constantly positive cash flow, already in the coming months,» he added.