By journalist Ain Alvela.

After announcing the plans to raise capital through a stock market listing and secure a strategic investor last year, the future of Air Baltic is still unclear. While German aviation giant Lufthansa has stepped in as an investor, the airline’s IPO has been postponed once more following the departure of longtime CEO Martin Gauss.

The clouds began gathering over the Latvian national carrier last autumn, when the company reported a significant loss for the first half of the year. The stark reality became clear – the airline, which had been pursuing bold expansion plans, was in the grip of a serious liquidity crisis. In response, the company issued bonds with an interest rate of 14.5%, raising close to €400 million. Analysts noted that borrowing under such terms signalled a delay in the carrier’s investment ambitions. The goal of taking the company public is to raise capital – proceeds from the IPO would allow Air Baltic to repay its expensive debts and bonds and to push forward with its investment strategy.

Air Baltic’s Stock Market Plans Left Hanging

Air Baltic had initially aimed to go public in the autumn of 2024 – even ahead of the U.S. presidential election. A key condition for the IPO was securing a strategic investor willing to acquire a minority stake in the airline. While several major international aviation companies were rumoured to be in the running and Latvian officials spoke of “finalizing a deal” at the government level, the new year arrived without an investor – let alone a public offering. Instead, 2025 began with less optimistic news – the company announced it would cut 19 routes this year, including flights from Tallinn to Dubrovnik, Croatia, and a reduction in frequency on the Tallinn–Copenhagen route. A planned Tallinn–Hamburg route, originally slated for summer 2025, will not launch, and flights from Tallinn to Copenhagen will drop from six times per week to four. However, not all is being scaled back. The airline also revealed plans to open brand-new routes from Tallinn to Barcelona, Reykjavik, and Tirana during the 2025 summer season. In total, Air Baltic will cancel 4670 previously scheduled flights this year. The main reason for this is a shortage of aircraft, specifically due to prolonged maintenance work on their engines.

Following news of major route cuts, a public spat broke out between the Latvian government and Air Baltic’s supervisory board. The former Latvian Transport Minister, Kaspars Briškens, called on the airline’s leadership to take responsibility and explain the situation to the public. Economy Minister Viktors Valainis also weighed in, stating that Air Baltic needed new management. In response, the airline’s supervisory board chairman Klavs Vasks took to social media to accuse the government of misleading the public. He also acknowledged that negotiations with a strategic investor had not progressed as smoothly as hoped. The tensions culminated in the resignation of the entire supervisory board at the end of January. Government officials expressed hope that this would mark the beginning of a new chapter for the airline. And it didn’t take long – just over a week later, it was announced that Lufthansa Group had signed an agreement to invest €14 million in Air Baltic, acquiring a 10% stake in the Latvian carrier. That stake will convert into shares once the company goes public. However, the announcement left one crucial question unanswered: when will the IPO take place? At this point, speculation is growing that a listing may not happen in 2025 either. Currently, Air Baltic is operating under an interim supervisory board.

Lufthansa’s Small but Symbolic Stake Signals Confidence in Air Baltic

Lufthansa’s investment in Air Baltic has been welcomed by aviation experts as a positive development for the Latvian carrier, offering a much-needed boost in credibility. While €14 million may seem modest compared to Air Baltic’s annual revenue of nearly €750 million, its debt load exceeding €1 billion, and an accumulated loss of around €650 million, the move sends a clear signal to the market – Air Baltic has a vote of confidence from a major industry player, making the future IPO still possible.

Although Lufthansa’s 10% stake does not grant it significant decision-making power, while the Latvian state retains a controlling interest, the symbolic weight of the deal is considerable. It paves the way for a future IPO and may reassure potential investors about the airline’s prospects.

The move may also reveal broader strategic interests of Lufthansa. Air Baltic has long served as a subcontractor for Lufthansa, and the German aviation giant’s decision hints at possible long-term plans. The Latvian government, for its part, has not ruled out the possibility that Air Baltic could eventually become part of the Lufthansa Group.

From a national perspective, Latvia has limited options when it comes to supporting Air Baltic. Under European Union state aid rules, the government can only inject funds into the airline if a private investor is willing to contribute an equivalent amount. Still, a direct state investment cannot be ruled out entirely. Whether public money is used will ultimately depend on how Air Baltic is valued just prior to its stock market debut. Another key factor will be a political decision – specifically, whether the Latvian government wishes to retain its stake in the airline. Government officials have clarified that Lufthansa’s €14 million investment for a 10% stake should not be interpreted as implying a total company valuation of €140 million.

Should the Latvian government choose to invest in loss-making Air Baltic, it would widen the state budget deficit. Nonetheless, there is broad consensus that, from a strategic standpoint, the state should retain at least a 25% stake in the national carrier. For the airline’s planned IPO to appeal to investors, however, the government must clearly articulate its ongoing strategic interest in the company.

By now it is also known that despite turning a modest profit in the second half of 2024, Air Baltic closed the year with a full-year net loss of €118 million. At the same time, the airline showed signs of growth: annual revenue reached €747.6 million, up 12% year-on-year, while passenger numbers climbed 18%.

CEO Dismissed, But the Course Remains the Same

Signs that Air Baltic must begin tightening its belt became clear in February, when the airline’s management board agreed to a temporary 40% pay cut until the successful completion of its IPO. According to 2023 disclosures, the former CEO Martin Gauss had been paid €828,942 as salary the year earlier – making it the highest-paid executive position in Latvia. The salaries of the other two board members were more than twice as low.

Despite the efforts, Gauss was ultimately let go. On April 7, Latvia’s Ministry of Transport announced his dismissal after a vote of no confidence was passed at the airline’s general shareholders’ meeting. Until a permanent replacement is found, the CEO role will be filled on an interim basis by Pauls Cālītis, who has worked in Air Baltic for 30 years and has been a board member since 2020.

Latvia’s Ministry of Transport has confirmed that replacing the CEO will not alter Air Baltic’s strategic course – the company remains committed to pursuing an initial public offering. Nevertheless, Prime Minister Evika Siliņa has called for a swift review of how the airline can become a stronger player both in Latvia and across the Baltic region.

Martin Gauss, who led Air Baltic for 13 years, said he is proud of his accomplishments, describing the airline as a strong company with a loyal team and a bold vision. However, it has since emerged that the real reason behind his dismissal was the airline’s heavy losses in 2024. A global search will now be launched to find a new chief executive for the company.

Leadership Change Likely to Delay Air Baltic’s IPO Plans

“When you’re a state-owned company like Air Baltic, it’s very difficult to justify all those costs to taxpayers”, Jan Palmer, the former CEO of Estonian Air and Nordica.

Jan Palmer, the former CEO of both Estonian Air and Nordica, believes the dismissal of Martin Gauss as head of Air Baltic was primarily a political move. “When you’re a state-owned company like Air Baltic, it’s very difficult to justify all those costs to taxpayers,” Palmer told Estonian Public Broadcasting. “I think this decision stems from a conflict between political and business interests.” Palmer predicts that the shake-up at the top will inevitably delay Air Baltic’s stock market debut, possibly by two to three years.

Aviation expert Sven Kukemelk shares a similar assessment of the situation, stating that for a successful IPO, it is crucial to clearly demonstrate what and how things will change within the airline. However, the Latvian government remains more optimistic, hoping to reach the IPO stage by this coming fall. Kukemelk identifies three major challenges ahead for Air Baltic. First, the airline’s geographical location, which unfortunately cannot be changed, but which has led to a loss of transit passengers from Eastern Bloc countries due to shifting political dynamics. Second, a wrong business direction with an overemphasis on leisure travellers – a segment dominated by low-cost carriers with lower operating costs. Third, the airline’s post-COVID business model, which saw a transition to a uniform fleet and was adapted with government aid, now requires a fresh approach.

Both Palmer and Kukemelk agree that due to the airline’s losses, Air Baltic’s current value is low, making it unwise to sell, and finding a buyer would be challenging. In mid-April, the Latvian government expressed interest in having Estonia and Lithuania invest in Air Baltic or participate in some other way in the airline’s operations. Prime Minister Silina has expressed an opinion that the company serves the whole Baltic region not only Latvia. “It would be fair if our colleagues from Lithuania and Estonia explained these opportunities to the public,” Silina said. “This could involve government-level cooperation, collaboration at the airport level, a joint-stock company between the countries, institutional cooperation, or even the inclusion of a private investor.”

“If there is one airline that is performing well in our region, it’s Air Baltic” Kristen Michal, Estonian Prime Minister.

Both the Estonian and Lithuanian governments have so far been sceptical about providing financial support, but Estonian Prime Minister Kristen Michal has promised political backing for Latvia’s state-owned airline. “If there is one airline that is performing well in our region, it’s Air Baltic,” Michal asserts. “We must be very, very grateful to the Latvians for maintaining such high-quality service, and for the fact that they operate flights from Estonia.”