C Series launch customer Air Baltic seeks strategic investor
Air Baltic Corp., the Latvian carrier that’s gone from near collapse to launch customer for Bombardier Inc.’s largest C Series jetliner, aims to secure a strategic investor as soon as the end of this year after attracting a global lineup of potential bidders.
July 26, 2017 By Montreal Gazette
Lazard Ltd., which is managing the sale, has drawn up a shortlist including other airlines as well as financial investors with aviation experience, and will now commence a period of due diligence before seeking binding bids, Martin Gauss, the state-controlled carrier’s chief executive officer, said in an interview.
Latvia, which owns 80.5 per cent of Air Baltic, could reduce its holding to below 50 per cent and may opt to sell a majority stake, according to Gauss, who became CEO in 2011 when the company was nationalized as it teetered on the brink of collapse. Since then, he has dropped a point-to-point discount strategy in favour of a hub model, in which passengers can change planes at the carrier’s Riga base.
“Nothing is ruled out” in terms of a deal, Gauss said, adding that the focus of the sale will be on securing a shareholder that’s able to help AirBaltic develop its business rather than simply provide a financial injection.
Air Baltic came close to liquidation following the 2008 financial crisis and years of austerity that pushed European carriers including Hungary’s Malev Zrt., which Gauss used to run, to the wall. The Latvian airline responded by getting rid of its purely low-cost model and adopting a hybrid approach that also targets customers traveling between western Europe and such cities as Kiev, Ukraine; Baku, Azerbaijan; and Kazan in the Russian republic of Tatarstan.
Air Baltic has been aided by the exit of regional rivals Air Estonia and Air Lituanica of Lithuania in 2015, and while it’s still battling the growth of discount carriers, its market share in Latvia has risen to 55 per cent from 47 per cent, ahead of Ryanair Holdings Plc, Wizz Air Holdings Plc and Norwegian Air Shuttle ASA.
Gauss ordered 20 of Bombardier’s CS300 airliners in 2012, and says that with six now delivered and serving destinations including London, Paris, Amsterdam and Moscow, the model is exceeding expectations, with a 21-per-cent fuel saving over the Boeing Co. 737-300s it’s replacing. The 145-seat layout features a low-cost style model in economy class, with luggage, meals and seat reservations costing extra, plus full service for business-class travelers.
Air Baltic was founded as a venture between SAS AB and the Latvian state in 1995, before the Scandinavian carrier exited in 2009 by selling its stake to then-CEO Bertolt Flick through a management buyout. Flick departed in 2011 amid mounting losses, and the government took full control, appointing Gauss.
About 20 per cent of Air Baltic shares are held by Danish financier and former SAS chief financial officer Lars Thuesen. That stake was acquired from German investor Ralf-Dieter Montag-Girmes, who had bought the holding as part of an initial 52 million-euro ($61 million) refinancing in 2015.