It will be known next month whether Nordica (ND, Tallinn Lennart Meri) faces either privatisation or bankruptcy, Estonian Minister of Climate Kristen Michal told the local broadcaster ERR, affirming that the state will not put any more money into the carrier to keep it afloat.

He was speaking shortly after a memo from the Climate Ministry, whose portfolio the state-owned flag carrier now falls under, was made public last week saying that insolvency could not be ruled out. This came as the company posted a loss of EUR11.9 million euros (USD12.7 million) for the first nine months of 2023 despite a 29.8% revenue rise.

The memo said that the majority of the loss at Nordic Aviation Group AS, the parent entity for Nordica and its ACMI-focused subsidiary Xfly (Estonia) (EE, Tallinn Lennart Meri), had accumulated in just the last four months, complicating efforts to turn around the company, a process for which aviation advisory firm Knighthood Global was hired this summer to contribute to.

The note pointed to issues in four areas as reasons for the poor results: contract terms that are detrimental to the company and fail to adhere to the general practice in the aviation market; an overly complex organisational structure; contracts improperly implemented; and an overly complex fleet structure.

“In short, the difficulties are due to new contracts that the company lacked the necessary skills and resources to fulfil, and service to the current customer suffered as a result,” the memo said. “Expenses to prepare to service the contracts (recruiting and training the crews, aircraft leases) significantly exceeded revenues, which turned out lower than forecast as the contracts could not be fulfilled at the planned volumes.”

Two contracts concluded last year plus a previously concluded one with SAS Scandinavian Airlines (SK, Copenhagen Kastrup) have been unprofitable for the Estonian airline, it added. According to the ch-aviation fleets module, the other two ACMI customers were Portugália Airlines (NI, Lisbon), which wet-leased two ATR72-600s from Xfly, and Marabu (DI, Tallinn Lennart Meri), which wet-leased two A320-200Ns from Nordica. For SAS, Xfly operates all of the other aircraft in the fleet, namely seven other ATR72-600s and nine CRJ900ERs.

In its memo, the ministry also referred to several management changes. On July 25, Jan Palmér, chief executive of both Nordica and Xfly, announced his resignation and left immediately. As he was also the individual designated as Nordica’s accountable manager, such an abrupt departure meant that the company was at risk of losing its Air Operator’s Certificate (AOC), the document said. The supervisory board had to find a solution quickly to restructure the company, leading to the involvement of Knighthood.

Michal told ERR that two major changes must now take place - Nordica has to fly to and from Tallinn as a scheduled carrier, which it no longer does, and it must be able to finance itself.

“It is not fulfilling the task agreed on when it was set up. It is not a strategic carrier for Estonia. We pay tens and tens of millions of euros every year for public transport in Estonia. So we are certainly not going to put taxpayers’ money into the fact that an airline is providing transport in other countries, especially at a time of cutbacks,” the minister said.

“We have also now asked the government, together with the Ministry of Finance, for a mandate to privatise Nordica, either in part or as a whole, either alone or together with [lessor] Transpordi Varahaldus, so I wouldn’t draw a line under that plan. I would wait to see how they do and if there are interested parties to privatise - there has been interest in this company recently - then we will do that. If that fails, then it will either have to continue on its own or go the way of the perishable.”