Air Baltic confirms preliminary talks with Japanese carriers

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Latvia's government sent a delegation to Japan in April to discuss possible investment in flag carrier Air Baltic, chief executive Martin Gauss tells Flightglobal.

Talks were held between Latvian officials and Japan's two largest carriers - Japan Airlines (JAL) and All Nippon Airways (ANA) - though Gauss stresses that they were "preliminary discussions" and no decisions have been taken.

State-owned Air Baltic last year said early-stage talks had also been held with unspecified parties in the Persian Gulf and China.

"The shareholder is looking in all directions for what is possible for the future," Gauss says, adding that airline management are not directly involved in the negotiations. "The best thing we can do is continue the [ReShape restructuring] plan better than expected."

Latvia's government is soliciting expressions of interest for 50% of Air Baltic minus one share. The state has been looking for a co-owner since Baltic Aviation Systems (BAS) divested its 47.2% holding in the airline two years ago.

In November 2012, it emerged that BAS had filed a complaint with the European Commission alleging that the airline benefited from illegal state aid during the partnership.

Asked about the status of the investigation, Gauss says: "We are confident that what the shareholder has done is in line with private investor principles. We are in the process of answering the questions, and we don't know when the commission will make its decision."

The EU probe centres on a capital injection committed to jointly by BAS and the government in late 2011, Gauss explains.

Both parties honoured the first instalment, but BAS subsequently withdrew from the agreement after deciding to sell its stake. The government then stepped in to ensure that the airline could continue operating despite its unexpected loss of funding.

"The private shareholder signed up for it, but then failed to pay the money," Gauss notes. "So the state jumped in and said it will take that part as well, rather than lose the airline."

Gauss says the government has an "expert group" assessing the legal detail of the agreements, but he emphasises that the financial sums in question are "not so dramatic". Air Baltic management will "wait and see, and we'll have to live with what is decided," he concludes.

"Either way we will reach profitability in 2014, and if you're a profitable airline it's not so difficult to deal with issues coming from the EU."

Air Baltic this week reported a full-year net loss of 19 million lats ($35.4 million) for 2012, marking a 78% improvement on the previous year's result. The airline had budgeted for a loss of 38 million lats. Gauss credits the ReShape plan with stemming the losses.