Estonia's national airline has been in poor financial shape the past couple years, posting -€11 million in 2008.

TALLINN — The Estonian government’s bailout plan for country’s troubled national airline was laid out on Friday.

After signing a memorandum of understanding last month, SAS and the Estonian government agreed Friday to a rights issue that will give 90 percent ownership to the state, which currently holds 34 percent of the company, while the 49 percent owned by SAS will be diluted to 10 percent and Cresco’s likely to zero. The move is in line with the Scandinavian carrier’s current strategy of selling non-core assets, as it is also struggling.

If the agreement will be signed at the next shareholders meeting June 15 as planned, the Estonian government must invest 280 million krooni (€17.9 million) and SAS 31 million krooni (€2 million) into Estonian Air’s stock capital. The state also must pay a 115.5 million krooni (€7.4 million) loan to SAS.

“It is important to stress that the state will not buy the carrier from other stockholders but plans to invest additional money with SAS into the company’s own capital for necessary investments,” Juhan Parts, the Minister of Economy told reporters at a press conference Monday.

In addition to servicing debt, Parts said the additional capital may be used for investing into buying additional aircraft beyond the carrier’s puny fleet of six. This will allow the airline to increase routes and avoid the damage down the tourism industry by the shutdown of the national airline, something nearby Lithuania experienced last year.

The Cresco investment bank, which has held shares of Estonian Air since the company’s 1996 privatization, has not agreed to put up any capital, disagreed with the government bailout plan and has said in previous statements that it does not want to have partial ownership in a government-run company.

Olev Schults, the new owner of Cresco lashed out at the proposal in an interview with Äripäev, saying that state representatives did not consult his company on the deal.

“Writing off the stock capital shows the intention to get rid of Cresco and get new capital through manipulation. Those who have operated in the in the corporate world know what that means,” said Schults.

“We will not be part of the nationalized enterprise. We will be shareholders until it is firmly settled,” he said.

Parts said at the press conference that Cresco will not be forced out of Estonian Air but will have a chance to maintain some part of the ownership. Parts would not comment on whether the state is looking to resell its shares to a strategic investor.

Cresco has proposed SAS to buy their shares in the company but the offer was turned down. Also Latvian national carrier airBaltic has shown interest in becoming the shareholder in Estonian Air.

“We are seriously considering to take over the Estonian carrier,” Jānis Vanags, airBaltic’s vice president of corporate communications told the news program “Aktuaalne Kaamera” in January.

SAS Group, who has been the main shareholder since 2003 has been seeking to drop its 49 percent for over two years, as Estonian Air posted -176 million krooni (-€11.2 million) in 2008. Estonian Air’s 2009 financial results have not been released yet, but its passenger decline over the past year is a foreboding indication of what they may look like. The airline has introduced austerity measures such as a 30 percent wage cut for pilots.

This article is free to view. To read Baltic Reports’ subscription-only articles, click here.