The Latvian State Audit Office has charged the government with failing to monitor the recovery of investments made in the Latvian flag carrier airBaltic during the Covid-19 pandemic, seeing them as a “purse to draw from” rather than behaving as a sufficiently qualified and demanding owner of the capital enterprise.
The Audit Office conducted a follow-up on its recommendations that were made in a 2021 audit of how the state supervised its airBaltic investments during the pandemic.
Latvia’s total contribution toward the share capital of airBaltic amounts to EUR 545 million, of which EUR 340 million were invested during Covid to mitigate its effects between 2020 and 2022. The state thus increased its share in the company from 80.05% to 97.97%.
The State Audit Office argues that none of the supervisors – the Ministry of Transport, the airBaltic supervisory board or the Cabinet of Ministers – has taken sufficient steps to facilitate the recovery of the state’s investment.
The office recalls that the government initially promised to recover the EUR 250 million that were allocated to airBaltic during the first phase. This was clearly stated in official documents and public statements until June 2023. A strategy approved by the Cabinet of Ministers in 2021 stated that recovery of the investment was to take place via an initial public offering (IPO), during which the state would reduce its shareholding down to the level of 51%.
The State Audit Office, however, has stated that the strategy lacked a concrete action plan. The approved strategy was never revisited despite significant changes such as a second wave in the Covid pandemic, Russia’s invasion of Ukraine, problems with aircraft engines, and several chances to the airBaltic business plan. Meanwhile, the state invested another EUR 90 million in the company.
In August 2024, the government decided to reduce airBaltic’s share capital by EUR 571 million, which the company saw as a key prerequisite for success in the IPO. Following this decision, officials and representatives of airBaltic “made unsubstantiated public statements to say that recovery of the investment was never planned, or to insist that the state aid has already been repaid through taxes and economic contributions,” the State Audit Office argues.
Aid to airBaltic was predicated on European Commission regulations which enabled the company to be placed in a “state aid situation.” This meant certain restrictions on remuneration to the company’s board of directors, for instance, and the State Audit Office has concluded that the main objective for quitting state aid is to reduce the state’s shareholding in the company. It is up to Latvia as the aid provider, however, to decide whether it will recover Covid-19 funding as a result of the process. The temporary framework currently contains further exit mechanisms, some of which actually would not regain the investment, but the Latvian Cabinet of Ministers has not yet approved such an exit strategy.
In addition to EC conditions, countries had the right to apply stricter rules on their own. Latvia did not set any conditions, and even though the public and government were told in 2020 that airBaltic managers had agreed to a 20% salary cut at the beginning of the Covid crisis, the audit found that the amount was only temporarily lowered, and the board was repaid the missing money in January 2022 at its own initiative.
In 2021 the State Audit Office called on the Cabinet of Ministers to establish specific procedures for managing the risk of recovering airBaltic investments. The Cabinet failed to do so, instead continuing the monitoring process on the basis of rules that date back to 2015.
Source: BNS
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