Inspection Report Reveals Inadequate Oversight of airBaltic by the State in Latvia
In a complex web of financial and managerial challenges, the state's recovery plan for its investment in airBaltic faces a lack of clarity and implementation. This predicament is largely due to the recent decision by Estonia to withhold a stake in the airline, citing ongoing financial uncertainty and management changes.
The financial troubles and leadership changes within airBaltic have cast a shadow over the airline's future, causing Estonia to reconsider additional investment. Despite airBaltic's significance as a regional connector and passenger carrier, the country has chosen to support the airline operationally, such as maintaining airport fees until 2030 to provide financial predictability for its Estonian operations.
Other potential investors, like Lithuania, are still undecided, while Germany's Lufthansa Group has received approval to acquire a 10% stake, signalling strategic interest but also indicating slow progress on new investments. airBaltic has delayed its planned initial public offering (IPO) until early 2026, further postponing potential new capital inflows and recovery of state investments.
The Latvian government, as the majority shareholder, remains in control of recovery efforts, but the uncertainty among regional partners slows broader support and clarity on a comprehensive recovery plan. The delay in the IPO, coupled with protracted negotiations over shareholding arrangements, has left the recovery efforts in a stalemate.
The Ministry of Transport argues that airBaltic's exit from state aid was not due to management but was influenced by external factors such as the Russia-Ukraine war, geopolitical situation, currency fluctuations, fuel prices, engine problems, and so forth. Until December 2024, the informative reports on the actual situation were prepared by airBaltic itself.
The State Audit Office has criticised the lack of essential information provided to the Transport Ministry for adequate supervision of airBaltic, including employee remuneration and capital investments. The auditors believe that the state has acted more as a 'cash cow' than a demanding owner of the capital company airBaltic. They also call for the strengthening of supervision of the state-owned shares in airBaltic, possibly by transferring them to another ministry or competent authority.
The Ministry of Transport maintains that it supervises airBaltic in accordance with regulatory requirements and based on uniform principles. However, the auditors find that the airBaltic board has not adequately monitored remuneration limits for its management board. The auditors also question public statements made by officials and airBaltic representatives that the recovery of the investment was never planned or that it had already been repaid.
In response to the State Audit Office's criticism, the Ministry of Transport plans to challenge the audit report. The Ministry does not agree with the criticism of insufficient supervision of one capital company and asserts that the allegations of a lack of supervision are without grounds. The Cabinet has not established a specific procedure for managing the risk of recovering the investment, as recommended by the Audit in 2021.
[1] Source: Various news reports and government documents.
- The economic difficulties and leadership shifts within airBaltic have raised concerns among potential investors, such as Lithuania, causing them to hesitate about additional investment.
- In an attempt to provide financial stability for its Estonian operations, the country has decided to suspend airport fees until 2030, acting more as a supportive entity rather than a capital investor.
- The media has reported that the recovery plan for airBaltic faces challenges due to the Latvian government's lack of clarity and slow progress in implementing the plan.
- The State Audit Office has expressed concerns about the Latvian government's handling of its investment in airBaltic, citing insufficient supervision, particularly in areas such as employee remuneration and capital investments.
