The dramatic cancellation of a deal to supply Slovenian flag-carrier Adria Airways with a phased delivery of fifteen Sukhoi Superjets has provoked a divergence of reasons behind the now annulled agreement. Much is therefore unclear, although it is blatantly unequivocal that both parties will insist on pursuing their own face-saving narrative.

The need for owners 4K Invest to recapitalize Adria was apparent, so much so a €10 million capital injection slated for the first quarter of 2019 was seen as the only way for the Brnik-based airline to remain viable. As though the deadline neared without any obvious indicator that 4K had actually stumped up the cash a suspicion from where the money was to emanate coincided with the apparent agreement with Sukhoi, whose initial delivery of two Superjets, themselves sent back to the Russian-manufacturer by Irish carrier CityJet, were to be the hors d’oeuvres prior to the arrival of a further thirteen jets over the next few years.

It does though now appear that 4K offered equity in Adria Airways to Sukhoi in exchange for the €10 million it hoped would come from the Russian civil aviation company. This now begs the question as to whether 4K ever intended to recapitalize Adria before it entered into negotiations with Sukhoi, and if it actually has the means or desire to do so. With the deal now dead in the water but with an insistence that finance was only required to transition the airline towards a new aircraft type, 4K/Adria are keen to promulgate that it is very much a case of business as usual, and without the need for additional capital to fulfill its business obligations.

For an airline reportedly in serious debt to several prominent industry-related creditors, and without any aircraft of its own, one must therefore wonder how a stake in Adria equating to a value of €10 million could be offered when its value after liabilities, including a lack of aviation assets, could arguably be far less than the conversion to equity proposal for Sukhoi’s money. Once the Russians had commissioned experts to drill down into the minutiae of Adria’s finances, it would appear they came to the same conclusion. Significant debts and a lack of its own aviation hardware that meant Adria are locked into wet-lease agreements for their Bombardier and Airbus aircraft hardly suggests there is €10 million worth of wriggle room within the formerly proposed deal. In such circumstances it is therefore extremely difficult to place an actual value on a business, with only landing slots, goodwill, and branding remaining as tangible assets; the price of the latter two being highly subjective in a cutthroat, volatile aviation sector.

A series of extremely damaging, and expensive, delays during 2018 undermined an image of which Adria have otherwise been justifiably proud. As the peak tourist season appears on the horizon the airline will obviously be keen to put this latest setback behind them, although there are concerns of its ability to honour an already slimmed down summer schedule. Several of its wet-leased jets have already been ‘sublet’ out to other European airlines, presumably on the assumption that the Sukhoi aircraft would pick up the slack. Without those planes committed elsewhere and the deal with Sukhoi dead in the water, an increased reliance on the 2-4 Saab 2000 turboprops at Adria’s disposal, each with a modest 50-58 seating capacity, will hardly drag the airline’s finances away from what is gaping precipice. Should the summer service be trimmed yet further Adria will be entering into territory that more defines it as an ACMI – Aircraft, Crew, Maintenance, Insurance – business than a commercial airline.

The search for a strategic partner for Adria Airways will continue, which many assume has been the case for some time. What form that would take is unclear, although it will be very difficult for a deal to be struck that is anything other than on the terms of whoever seeks to buy in or assume a controlling interest of the airline. Lufthansa have for years been rumoured to be interested in Adria, but I cannot in these circumstances see the owner of Frankfurt-based owner of both Austrian and Swiss absorbing it into its empire. The majority acquisition of Laudamotion by Ryanair showed that European Low Cost Carriers(LCC) wield significant power within the continental short-haul market but the prospect of the likes of the Wizz, EasyJet, or Ryanair itself being interested in Adria is less than highly unlikely, save for the routes they could exploit in the event of its demise.

Laudamotion, now Lauda, continues to resonate with central European customers. From its early days fronted by Austrian motor-racing legend Niki Lauda, Lauda Air and then Niki, carried a certain cachet through their honorific titles. Although fortunes have ebbed and flowed for the various incarnations bearing the 70-year old’s name, an enduring fascination with the former Ferrari driver gave a certain ‘celebrity’ to his aviation start-ups, a feeling somewhat now brought back down to earth since Laudamotion/Lauda have been exposed to Ryanair’s unique operational methodology. The point though is made that major regional and low-cost players, such as Lufthansa and Ryanair, don’t need to risk pouring money into Adria’s black hole.

Despite Ryanair’s continued absence from Slovenia it is quite easy to imagine that Fraport, Ljubljana Airport’s owner-operator would welcome it will open arms should Adria cease operating. The removal of what has been perceived by Ryanair as favouritism towards an Adria-dominated monopoly at Brnik would surely in such circumstances lower landing charges at Joze Pucnik Airport to those more favourable to the LCC and enable recommencement of services within the one country in the European Union in which it currently has no foothold.

Few would wish for anything but a healthy and functioning Adria Airways. The days when it appeared to be in rude health were though during those when it was a state-owned enterprise, relying on periodic bailouts from central government. Since these could no longer be justified to come from the public purse Adria, like so many other public-sector companies in Slovenia were denationalized, offering the burden to those who operate in risk/reward venture capitalism. It would therefore seem that with few options of growth from a shrinking fleet to service its liabilities, 2019 will be a defining year for the airline.

In an ideal world for those living in a fool’s paradise an airline spanning the whole of the former Yugoslavia would not only be a practical solution, but also one to honour how Tito somehow kept its many diverse constituent parts together for so long. The very diversity of today’s seven independent republics is no different to the pre-secession challenges of yesteryear. Whilst a bond still remains between many, not all, of the former Yugoslavia’s component parts, as does a certain rheumy-eyed nostalgia often precipitated by revisionism and selective memories, the clamour for self-determination would never have entertained the notion of several countries grouping together to form one, or several regional airlines. Rooted in idealism and with some common and financial sense, such a suggestion would nevertheless receive short shrift.

Without untenable amounts of public subsidies ploughed into carriers whilst in state ownership countries the size of Slovenia will always struggle to justify having their own airlines. It should really be no surprise that Adria is struggling now it is a private enterprise, nor that 4K Invest are flailing around in the search for rapidly diminishing solutions. The next six months will point to whether this amounts to raging at the dying of the light, or the securing of the airline’s short to medium-term future.

Source material and further information:

Ex Yugoslav Aviation: