Disassembling the flights: Estonian airline Nordica has gone bankrupt
In Estonia, the inglorious epic of saving the national air carrier stretched for almost twenty years. However, all the money injections did not help, the airline went bankrupt - and twice. If nine years ago Estonian Air ordered to live long, now Nordica, built on its ruins, has also gone bankrupt. The Estonian parliamentary opposition suspects corruption and demands a detailed "debriefing" to identify those responsible for Nordica's demise. The Estonian ruling coalition is cold-bloodedly calculating the losses and preparing to sweep the dust under the rug. Read more in the Izvestia article.
Failure streak
The national company Estonian Air was established on December 1, 1991, shortly after Estonia left the USSR. The owners of this company were the Estonian state and the Swedish SAS Grupp. For several decades, Estonian Air operated passenger transportation on scheduled international flights, custom flights, and cargo transportation. However, fourteen years after its foundation, the company fell into a prolonged losing streak: the last time it made a profit was in 2005. In the crisis year of 2008 Estonian Air's losses amounted to 170 million Estonian kroons (about €42.5 million), and in 2009 - 70 million kroons (€17.5 million).
The authorities started looking for an opportunity to shed the loss-making company. In December 2012, it was first announced that Estonian Air could either go bankrupt or merge with Latvian national carrier Air Baltic. But in the three years since then, neither has happened. The state never decided to make any drastic steps, and meanwhile the national airline continued to go down smoothly. In the fall of 2015, it was announced that Estonian Air was on the verge of bankruptcy. Eventually, the state decided that it needed its national carrier for reasons of prestige - and took on the task of rescuing it, allocating €84.9 million in subsidies to Estonian Air. But the European Commission ruled that the state aid to Estonian Air was "unlawful" because it restricted free competition.
The government authorized the then head of the Ministry of Economic Affairs Kristen Mihal (now the Prime Minister of Estonia) to create a new company with state capital, which would take over the functions of Estonian Air. This is how Nordic Aviation Groupi (Nordica) came into being. However, the new airline was no more successful than its predecessor - Nordica's first-year losses amounted to €15 million. However, then the situation improved somewhat - in 2017, the company managed to make a small profit. In 2018, Nordic Aviation Groupi's sales rose to €107.7 million (30% more than the year before). The number of Nordica passengers then increased by 33% (to 765,000), and the number of departures made rose by 38% (to almost 16,000). In total, Nordica's airplanes were used by about 2 million people in 2018.
However, despite all these successes, Nordic Aviation Group's consolidated financial result for 2018 was still negative (albeit to a lesser extent than in 2016) - minus €5.4 million. "The biggest impact on the financial results was the continued unprofitability of the Tallinn lines and costs related to changes in flight volumes, including fixed costs for aircraft," explained Kristi Ojakäär, a member of the company's board of directors. She promised to suspend flights on unprofitable lines and concentrate on the growth of foreign operations of the subsidiary Regional Jet".
Despite its best efforts, Nordica failed to become first even in its own country. The leader in air traffic at Tallinn Airport at the end of 2019 was Latvian AirBaltic, which served 21% of the total number of passengers who passed through the air harbor. Nordica's share was 14%, while third place was occupied by Irish budget carrier Ryanair with 10%. And then the industry was hit by a severe crisis caused by the Covid pandemic. When air transportation started again, Nordica even managed to make some money. But while the company made a profit of €1.5 million in 2022, last year it made a loss of €20 million. And in the first half of this year alone, Nordica's losses exceeded €8 million.
The cunning Ian Palmer
According to civil aviation expert Sven Kukemelk, "already in the pre-coronavirus times it became clear that it would be difficult for a small company Nordica to survive on the market in conditions of serious competition". In his opinion, the company should have been privatized a long time ago to free the state from the problems associated with it.
Estonia's current infrastructure minister, Vladimir Svet, holds a similar view. "We see a lot of classic national carriers around Europe that either came very close to bankruptcy or were forced to engage in mergers with other companies in order to maintain liquidity and competitiveness. It is a complex business, which is very hard for a small country with few inhabitants, little money, and few opportunities to influence the regional market to make profitable and efficient," explains Light.
Over time, however, it became clear that Nordica's troubles were also the fault of poor management. It turned out that the company's management had been unwilling to close unprofitable routes for years, and had signed contracts for servicing certain lines at below-market prices. The company's CEO Jan Palmer (a top manager invited from Sweden, who once managed Estonian Air) was found to have deliberately concealed information about the very bad financial situation of the company - why this came as an unpleasant surprise to many. In the meantime, Nordica has "burned through" €100 million that had been allocated for its development. In this connection, the parliamentary opposition began to actively inquire about whose pockets the money went into.
In the summer of 2023, Palmer left the post of the company, assuring that the affairs of Nordica are in order, the problems have been solved and the company has achieved financial stability. And in the fall of 2023 Nordica lost its contract with SAS Grupp to operate two domestic routes in Sweden (flights from Stockholm to the towns of Jellivare and Arvidsjaur in the north of the country), which had long been an important source of revenue for the Estonian airline. The two airlines were taken over by Amapola Flyg (now PopulAir), a small Swedish company, where Jan Palmer served as a board member in parallel with Nordica. Palmer used his connections to lobby for this decision to the detriment of the company he had previously managed.
Anastasia Kovalenko-Kõlvart, an opposition member of the Estonian Riigikogu who heads the parliamentary anti-corruption commission, is now outraged: "It seems to me that for some reason the fact that CEO Jan Palmer also worked in parallel in competing companies has not been analyzed to the end. A year ago Nordica lost two very important routes. And they were transferred to a competing company, and it was this company that was also managed by Jan Palmer, i.e. the head of Nordica". According to Minister Sveta, this issue is now being handled by the prosecutor's office, and the state should rather focus not on who is to blame, but on what to do next.
A number of politicians insisted that the state still needs a national airline: they say it promotes tourism, international recognition of the country, investment attraction, and mobility of citizens. However, the authorities decided to get rid of Nordica and started looking for a buyer. They had to hurry. In October 2024, Nordica's cooperation with its main partner - SAS airline - ended. The management of the Estonian company explained that the partnership was unprofitable, so there was no point in continuing it. And at the same time, in October, AirBaltic's small shareholder (2.03% of shares) and owner of the Danish airline Jettime Lars Tusen said that he was interested in buying Nordica.
The corrupt can sleep easy
However, Tüsen soon reported that he changed his mind and refuses the purchase. In turn, the government said that Nordica was so burdened with losses that it had no funds left to fulfill its obligations. Since there were no other bidders, the Cabinet of Ministers decided that the company would be declared bankrupt. "We are not ready to invest more taxpayers' money in it," said Infrastructure Minister Vladimir Svet. In parallel, it was decided to start the process of selling Nordica airplanes in order to reduce the damage caused to the state and, consequently, to taxpayers. The Nordica fleet has 19 airplanes, including nine Bombardier CRJ 900, nine ATR72-600 and one Airbus A320. With their sale, according to Light, "this romantic, but from the beginning unprofitable and unrealistic story about a national carrier" will be over.
Although it has been announced that the prosecutor's office is investigating the activities of Nordica's former management that drove the company into bankruptcy, the opposition is not satisfied with this - it is demanding the "blood" of a large number of officials involved. Martin Helme, head of the Conservative People's Party, points out that the airline's situation has especially worsened since the Kai Kallas government came to power in 2021. "We have every reason to suspect that the management of Nordica withdrew money from the company and presented to the board of the company knowingly false information, which the board did not check," accuses Martin Helme. For his part, Kovalenko-Kylvart demands to find out why the airline was not properly supervised by the government and why the responsible officials were not interested in the situation at Nordica.
Kovalenko-Kylvart's colleague in the Center Party, MP Alexander Chaplygin, is outraged by the double standards. He recalls how the state once dealt with the head of the Ministry of Education, Mailis Reps. Reps was extremely displeasing to the nationalists, as she opposed the elimination of Russian schools in the state. The task was set to discredit the inconvenient minister in order to remove her from her post. As a result, Mailis Reps was found guilty of buying a coffee machine for her house with state funds, as well as driving her children to school on official transportation. In November 2020, Reps was forced to leave office, was long and passionately lambasted, had a criminal case filed against her, and was eventually sentenced to a suspended prison term. After such an exemplary reprisal, the way to the structures of the state administration is closed for her.
Now Chaplygin fears that the people who drove Nordica into bankruptcy will escape responsibility. And he reminds that this is not the only example of squandering public funds. There is another - Estonia and other Baltic states have been building the Rail Baltica European gauge railroad since 2014, for which the EU has allocated more than €8 billion. Baltic officials promised to put it into operation in 2020 and 2024 - now they promise to do it in 2030 or even more, but in the meantime they are demanding more money from the EU. "Mailis Reps was given a suspended sentence for the coffee machine. I am very curious when the prosecutor's office will deal with the managers of Nordica and Rail Baltica with salaries in the tens of thousands of euros, who squandered hundreds of millions of public funds, as well as the politicians who cover this outrage?", - indignant Alexander Chaplygin.
Political scientist Maxim Reva, a native of Estonia, told Izvestia that the Nordica story illustrates the system of collective irresponsibility of officialdom in that country. "While the state has a tough repressive apparatus in place, it is deployed not against corrupt officials, but against the Russian-speaking minority. Journalists who cooperated with Russian media, human rights activists and non-system politicians who tried to protect the rights of the Russian community are sent to jail. But the corrupt can sleep easy. Who will hold them accountable? In Estonia, the system of hand washing hand has long been established. The father of the same Kai Kallas, a high-ranking former politician Siim Kallas was repeatedly accused of corruption, and he still feels fine. And corrupt officials of a lower status also sleep well," Reva summarizes.
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