Money invested by the State has never been the value of airBaltic - Gauss

RIGA - The money invested by the state in the Latvian national airline airBaltic over the years has never been the value of the company, Martin Gauss, President and CEO of airBaltic, told LETA in an interview.

He explained that this was the beginning of the problems, because the value of the company today is not the value of the money invested at the time. "I really want people to understand that. Let's assume for a moment that the value of the company today is EUR 100 million. The State has invested EUR 526 million over many years. Would you agree with me that what the State has invested over the years is no longer worth that today?" said Gauss.

He stressed that the value of a company is determined by what someone would be willing to pay at a given point in time to acquire 100 percent of the company.

"When the State invested money in the company all these years, that was not the value of the company. Therefore, when you reduce the share capital, you do not reduce the value," Gauss pointed out.

Commenting on whether the decision to reduce the share capital of airBaltic does not require approval by the European Commission (EC) that it meets the conditions for aid during the Covid-19 pandemic, Gauss said that no approval is needed for this purpose.

"The change in the balance sheet, the change in the share capital, goes together with the write-off of the uncovered losses. The share capital is in the balance sheet with a plus sign, the uncovered loss with a minus sign. Accordingly, if the share capital, or the positive side, is reduced, then the losses, or the negative side, must be wiped out so that the company's equity does not change," said Gauss.

He added that the purpose of the change is to reduce the share capital so that new shares can be issued, but the company's equity remains unchanged as a result of all this and will not have any impact on the value of the company.

"We do not need EC approval for this. The public debate is that the Minister of Transport or his advisors had a different view on how to do this than what our advisors, who are global banks, are saying. They say that to be successful in the markets, this is the way to do it. The result for the equity of the company is the same, because the equity does not change and the value of the company does not change," explained Gauss.

Commenting on the fact that taxpayers want to get their money back, Gauss said that he fully understands this. "I have also said that the value of these investments will be fully returned and I stand by that," Gauss stressed.

He added that for the value of a company to increase, someone has to say that they want to buy the company for more than the EUR 100 million mentioned.

"Someone from outside has to see a higher value for the company. This is usually achieved if your company is more profitable, you have higher profits, you own more land or whatever. So to be able to show more value, we have to be more valuable, and now it's not about money," said Gauss.

The airBaltic President explained that the Covid-19 support, which was granted throughout Europe, in the case of airBaltic is conditional on the state demonstrating that the company has positive value.

"Value, not cash. Moreover, let us remember that the Covid-19 aid amounted to EUR 340 million. What did we spend that 340 million on? We spent this money at a time when the planes were on the ground and not flying. We paid the salaries of our employees. We paid the bills, including to the State. In our case, we are even saying that the value of the company, even including this money, could come back," Gauss stressed.

As reported, German national airline Lufthansa is considering taking a stake in Latvian national airline airBaltic ahead of the Latvian state-owned carrier’s proposed initial public offering (IPO), Bloomberg news agency reported, citing to people familiar with the matter.

Talks are at an early stage and no decision about an investment has been made, said the people, asking not to be identified discussing confidential deliberations.

The government agreed at a meeting on August 30 that the state should retain at least 25 percent plus one share in the national airline airBaltic's share capital after the IPO.

Transport Minister Kaspars Briskens (Progressives) explained that the state is currently considering sale of a minority stake in airBaltic before the IPO or going into the IPO, as well as possible participation in the IPO. "One condition that the government agreed is that the state should retain at least 25 percent plus one share after the IPO, which means having veto powers.

The share capital of airBaltic after the reduction will be EUR 25.179 million, consisting of 251,795,252 dematerialized shares with a nominal value of EUR 0.1 per share. Each share will entitle the holder to one vote at the company's shareholders' meeting, a dividend and a liquidation allowance.

In 2023, airBaltic's audited turnover was EUR 664.289 million, up 33.2 percent on 2022, and the company made a profit of EUR 33.852 million, compared to a loss the year before.

The Latvian state owns 97.97 percent of airBaltic's shares, while the financial investor, Danish businessman Lars Thuesen's Aircraft Leasing 1, owns 2.03 percent.