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Following revelations in July 2023 that the economic indicators of Estonia's state-owned aviation company Nordica had become strongly negative in a very short period of time, a special audit was conducted at the company, which found that the most important factor was poor management.
«The company's management set its sights on expansion, but the risks associated with the various contracts and projects were not sufficiently assessed. New investments were also poorly analyzed. The content, limitations and risks entailed in contracts concluded for certain projects were only analyzed after the contract had been signed and problems had emerged,» Minister of Climate Kristen Michal said in a press release on Monday.
«Although Nordica's situation remains difficult, the new management has managed to identify all costs and risks and to increase the company's efficiency. This allows us to engage in substantive negotiations with interested companies for the privatization of Nordica,» the minister added.
It emerges from the final report that prior to embarking on new projects and concluding transactions, insufficient attention was given to the associated risks and potential mitigation measures. Additionally, the management board did not proactively provide the supervisory board with sufficiently thorough and objective information regarding the impact of specific decisions on the company. The supervisory board meanwhile did not request enough additional information.
While the service agreements entered into were budgeted to be profitable and the decisions to initiate the contracts were based on the owner's profit expectations, in reality, planned investments, new contracts, and projects were not analyzed with sufficient thoroughness, and the risks that materialized had not been identified and accounted for. Profitability analyses were based on overly optimistic assumptions. Therefore, according to the assessors of the special audit, the contracts entered into during the period under review were not fully in line with the owner's expectations.
The special audit looked at the management decisions made from the beginning of 2020 until July 27, 2023. The results will be presented to the government, the National Audit Office, the prosecutor's office, and access will be ensured for MPs. The Ministry of Climate will also present the results of the special audit to the nomination committee for senior executive positions in the public sector and analyze what needs to be improved in the management of state-owned enterprises to prevent situations like this in the future.
Nordic Aviation Group, or Nordica, incurred a loss of 11.9 million euros in the first nine months of 2023, compared to a profit of 1.8 million euros made in the same period the year before.