airBaltic a buyer for SAS. Baltic carriers flex their muscles
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There would not be many buyers for SAS today and the Latvian government has its tongue in cheek when it suggests it may buy the airline that is currently its joint venture minority shareholder in airBaltic. SAS founded the carrier with the Latvian government in 1995 in a 47.2%-52.6% joint venture, when EU membership for Latvia was on the horizon (Transaero holds 0.2%). Since then airBaltic has functioned largely as an extension of SAS and enjoyed the glow of SAS’ Star membership (although not a member itself).
Back in the days when SAS saw itself as a future force to be reckoned with, the Scandinavian conglomerate considered it “part of the SAS Group’s strategy to strengthen its position in the Baltic region”. In Sep-03, it also acquired 49% equity in Latvian neighbour, Estonia’s national airline, buying Danish carrier, Maersk Air’s share in Estonian Air. At that time, a SAS official noted "Estonian Air is a profitable, strong and growing company in a strategically highly attractive region. Traffic to and from Estonia is expected to increase by at least 8-10% annually”.
Later still, in 2005, the Scandinavian advertised the fact that it would “seriously consider” any offers by the Baltic carrier to sell down their shareholdings. By this time, both states had been admitted to the EU and their inevitable discovery by LCCs had occurred.
Since then, while other European airlines have established cross-border ownerships, SAS has sat, more or less patiently, waiting for the respective governments to move, so that it could take over in Latvia and Slovenia. Last month at reporting time, it finally spat the dummy, saying it was no longer interested in holding its position in airBaltic. According to Latvian government sources, a decision had been taken not to privatise.
Behind all this is a growing power of the airlines of the smaller Baltic states, enhanced by their EU status. Hence it should not be a major surprise that Latvia’s Transport Minister, Ainars Slesers, yesterday said he believed that “we will buy out SAS very soon.”
But SAS is unlikely to receive a windfall profit. Minister Slesers said the government would be prepared to “pay some money to SAS, not very much, but a reasonable, proper price.” However, as the government’s intention is apparently to have airBaltic continue to cooperate closely with SAS, hopefully for both sides the negotiations will not be too confrontational.
Mr Slesers then went on to suggest a reverse takeover of SAS, as the larger carrier’s share price slides.
If that was not enough, he rubbed salt into the wound by suggesting that airBaltic’s management would be “much better” and that its future would be brighter in new hands. However, as yet SAS has not approached the Latvians formally, so this is merely preliminary jousting.
airBaltic has recently been expanding in its own right, with codeshares with Brussels Airlines announced last month along with planned new routes to Amsterdam, Dubai and other points.
But it too has suffered financial losses recently, prompting yet another Baltic neighbour airline, flyLAL-Lithuanian Airlines to suggest it would be a better owner of the SAS shareholding. Formerly an Aeroflot subsidiary, in 1991 Lithuanian Airlines was the first airline of the republics of the former Soviet Union to acquire Western aircraft.
flyLAL talked earlier this year of joining the Skyteam Alliance and each of the major alliances would see some value in establishing a stronger presence in one or other of the local markets – or, better still, all of them.
flyLAL route network
Each of the national airlines has a similar fleet, based around B737-300 and -500 models, and two of them also operate B757-200s. Inevitably their route networks overlap considerably, mostly focused west and southwards, but their proximity to major Russian and CIS cities also offers a useful springboard, even apart from their inherent markets.
Any intrusion from outside would also hurt SAS, as it licks its financial wounds and reconsiders its offshore investments. Spanair sat on the firesale racks for months before SAS was forced to withdraw it.
But, for the increasingly precocious Baltic airlines, the future could look more interesting, as Europe’s takeover flurry turns into a storm. There are growing and potentially unexploited opportunities in the sub-region which could be attractive to a group seeking geographic coverage. airBaltic might not become the next owner of SAS, but the Baltic carriers may one day become more than a nuisance to their bigger neighbour.