Estonia’s Nordica Faces Impending “Liquidity Crisis”: Privatization or Bankruptcy Decision by 2023

Estonia’s national carrier, Nordica (ND), is on the brink of a significant financial challenge, with its fate hanging in the balance until the end of the year. Minister of Climate Kristen Michal announced that the government will not inject additional funds to rescue the airline, making it clear that Nordica’s future may involve either privatization or bankruptcy.

The announcement follows the revelation of a memo from the Climate Ministry, responsible for the state-owned flag carrier, which acknowledged the possibility of insolvency. Despite a 29.8% increase in revenue, Nordica reported a substantial loss of EUR 11.9 million euros (USD 12.7 million) for the first nine months of 2023.

The memo highlighted that the majority of the losses occurred in the last four months, complicating efforts to reverse the company’s financial downturn. Aviation advisory firm Knighthood Global was enlisted in the summer to assist in the restructuring process.

The challenges outlined in the memo included unfavorable contract terms, an overly complex organizational structure, improperly implemented contracts, and a convoluted fleet structure. The difficulties stemmed from new contracts that Nordica lacked the necessary skills and resources to fulfill, leading to lower-than-expected revenues.

Two contracts from the previous year, along with an existing agreement with SAS Scandinavian Airlines, currently contribute to the airline’s unprofitability. The ministry also pointed out unprofitable agreements with ACMI customers Portugália Airlines and Marabu.

The memo also highlighted management changes, including the abrupt resignation of CEO Jan Palmér, who served as Nordica’s accountable manager. This departure posed a risk to the airline’s Air Operator’s Certificate (AOC), necessitating urgent restructuring with the involvement of Knighthood.

Minister Michal emphasized two crucial changes that Nordica must undergo: resuming scheduled flights to and from Tallinn and achieving financial self-sufficiency. Michal stated that Nordica is not fulfilling its original purpose as a strategic carrier for Estonia, and the government is exploring the option of privatization, either partially or in full.

“We have asked the government, together with the Ministry of Finance, for a mandate to privatize Nordica. If there are interested parties, we will proceed with privatization. If unsuccessful, the airline may need to continue independently or face the possibility of bankruptcy,” Michal explained. The government is closely monitoring the situation, and a decision on Nordica’s future is expected by the end of the year.