Air Baltic’s new chief executive, Erno Hilden, has stepped into the top post as the carrier faces pressure over its financial performance and progress with its delayed initial public offering.
Hilden says the carrier – which emerged from “some of the most challenging years” in the aviation industry – is “in a period of change”.
“Our task is to steer this process in a way that strengthens the long-term sustainability of the business,” he states.
“Achieving this requires decision-making that is timely and based on a realistic view of the situation. In the coming weeks I’ll continue to review our performance in detail and define the actions needed for the company.
“This is the beginning of a process and it will take co-ordinated effort across the whole organisation. I am aware of the expectations from the shareholders and will guide Air Baltic in that direction.”
Latvian prime minister Evika Silina says she expects “clear steps and solutions”, from both Hilden and transport minister Atis Svinka, that “go beyond the IPO”.
Early this month the transport ministry maintained that completion of the Air Baltic IPO process was still planned for next year.
But the extent of the airline’s appeal to potential investors is unclear.
While it generated a net profit in its third quarter, the figure of €6 million was down by €34 million, although Air Baltic managed to turn around last year’s nine-month losses to post a €4.2 million profit.
Air Baltic attributed the quarter’s performance to a “complex” environment which featured cost pressures and engine-supply constraints, as well as lower passenger numbers owing to “network optimisations”.
It pointed out that its scheduled and wet-lease operations were expanding and yield trends were improving.
But on 1 December, the same day Hilden took over, credit-rating agency Fitch downgraded Air Baltic’s long-term issuer default rating, to the high-risk level of ‘CCC+’ – a fall which was noted during budget discussions in Latvia’s parliament a couple of days later.
Fitch explained its decision by pointing out “higher-than-expected leverage” and stating that Air Baltic had “significant external funding needs” over the next 12 months.
“It also reflects uncertainty about the timing and proceeds related to a planned IPO, which is critical for Air Baltic’s expansion,” it added.
“We also believe a successful public IPO is contingent on the company improving its financial performance, which increases execution risk, as reflected in the current [issuer default rating].”
Germany’s Lufthansa Group, with which Air Baltic has a wet-lease pact, invested in the airline earlier this year, taking a minority shareholding – an expression of confidence that could encourage other partners.
Fitch notes that Air Baltic has a strong market position, and a fleet of over 50 Airbus A220-300s which are efficient and attractive assets for wet-lease, while exposure to the type’s Pratt & Whitney engine issues are easing.
“My commitment is straightforward,” says Hilden. “We want to be the airline of choice in the region, delivering excellent service and high-quality operations. We also want to ensure partners can rely on clear and predictable value in working with us.”
