The imminent sale of Slovenian flag carrier Adria Airways has taken a decisive step towards its denouement, with the country’s incumbent administration agreeing to facilitate the airline’s disposal with a rumoured €2-4 million cash injection that could potentially be used to service the Brnik-based operator’s debts, one of the reported conditions demanded by interested parties who entered into the binding bid process.
Adria’s debt level has been a stumbling block that could have derailed the denationalisation process of the ailing airline – a risk the Slovenian government was surely unwilling to take. In its desire to privatise fifteen publically-owned companies, a process it has undertaken with varying degrees of success, the state seems especially eager to get Adria ‘off the books’, its insatiable need for tax-payers’ euros(€) seemingly unable to be quenched. During the last decade three aggregated cash injections totalling €15.3 million have failed to stabilize the airline, complementing a 2011 rescue package of €50 million that was classified as state aid. Fortunately for Adria and Slovenia the European Commission decreed this fell within its guidelines for member countries assisting distressed institutions; it could otherwise have found itself in a similar, unthinkable scenario which saw Estonian Air fold when its inability to repay illegal state aid became apparent. There is though a certain ambiguity of where a capital injection ends and state aid begins.
The 91.58% stake of Adria Airways up for grabs will technically sell for €1 but only AFTER the successful bidder has made up the €3-5 million shortfall needed to keep the carrier airborne and viable through the traditionally fallow winter season. It appears the only way the Slovenian government can circumnavigate European Union directives pertaining to state aid is by it entering into an agreement with a private enterprise to co-fund the latest financial bail out, in this case believed to be the German-based investment vehicle 4K Invest, ostensibly Adria’s new owner.
How the likely deal with 4K Invest will affect Adria’s six year vision remains to be seen although, with a background in acquiring similar sized businesses in need of restructuring 4K are perhaps not the long term owners that many in Slovenia desired. Whilst not enshrined in stone many businesses whose ethos is predicated on turning around failing companies seek to sell on their asset once it is deemed propitious to do so. Such exercises usually involve redundancies and severe pruning in all areas of the business. Many of Adria’s employees will therefore be seeking short to medium term assurances but with a reputation for being top heavy with staff, an exercise of trimming the fat seems almost inevitable.
Adria have though embarked on an ambitious strategy to diversify a route timetable away from its traditional Brnik base, underlining the need in modern aviation to not become reliant upon core markets, especially since landing charges at Ljubljana have become more costly since Fraport acquired Slovenia’s primary airport in 2014. In an attempt to hybridize the airline Adria’s management have sought to retain their traditional corporate target demographic but also tap into emerging markets with the opening of bases in Tirana and Lodz, adding to an intensified presence in Pristina, the Kosovan capital. It will though be interesting to see if 4K Invest recognise the obvious problem of an airline not actually owning any of its own fleet, instead relying on sale and lease back agreements of several jets it previously owned and Wet Lease arrangements that often involve aircraft not exactly in the first flush of youth. It is though predicted that new routes slated for 2016 will be honoured but as of yet no guarantees have been given regarding the reintroduction of Adria’s Maribor-London Southend service, a route that in 2015 heralded the return of the airline to Edvard Rusjan Airport after a fifteen year hiatus.