Wednesday, 8 April 2020

airBaltic downsizing, reducing workforce by 700, axing Boeing 737 and Bombardier Q400 fleets, cutting its A220-300 order and considering an IPO

air Baltic Airbus A220 in special flag livery                                                             Photo airBaltic
Martin Gauss, the CEO of airBaltic, the Latvian national carrier that is majority-owned by the state has issued a letter to the firm's customers detailing some extraordinary measures being introduced to cope with the fallout from the ongoing coronavirus COVID-19 pandemic.

airBaltic recently announced it was decreasing its overall capacity between April 15 and October 31, 2020 by cancelling over 50% of its flights. But, that's not all, Gauss confirmed in the letter that he was downsizing the airline, terminating the employment of some 700 staff, axing its 12 strong Bombardier Q400 NextGen fleet and getting rid of the remaining 4 of its Boeing 737 fleet.

Gauss is also in negotiations with Airbus about restructuring the outstanding order the carrier has with the European manufacturer for around 80 A220-300 aircraft. Whilst, at this stage there is no talk of cancelling the order, either in part or in full, local analysts believe it is only a matter of time before numbers are reduced.


When the travel bans, lockdowns and other restrictions on travel are lifted, airBaltic will emerge from the shadow of COVID-19 with just five Airbus A220 aircraft operating. The plan is to add an aircraft every week as demand increases, although that is by no means certain, as nobody really knows exactly what is going to happen. 

The primary shareholder is the Latvian state, holding around 80% of the stock, while Lars Thuesen's Aircraft Leasing 1 SIA owns the other 20%, however, that may change soon, if Gauss gets his way. His potential IPO - putting the firm on the stock market is still an option for the firm in the future, which Gauss suggests would give current shareholders a return on their investment as well as providing funds for the future development of the carrier. 

The full letter is below.


Letter from the President and CEO of airBaltic,
Martin Gauss 


Dear airBaltic guest,
Safety is always the number one priority for airBaltic. Now health and safety stand above all. Today, exactly three weeks ago, airBaltic temporarily stopped its scheduled operations due to the coronavirus. At the moment, we still do not know when we will be able to start flying again, but our team is preparing for it. With this letter, I would like to let you know how airBaltic is dealing with the COVID-19 crisis.

The aviation industry in Europe and in most countries around the world has been affected like never before. Passenger bookings for travel by air have been significantly reduced globally, and by almost 100% in Latvia. The current situation is changing all of our lives, having affected the way we lived, built personal relationships and worked for years.

Before the crisis, airBaltic was showing outstanding results. We closed the year 2019 with a new record for passengers transported. The number of destinations exceeded 80, and the airline’s financial performance was above our expectations, reaching revenues of more than 500 million euros. With this size, according to IATA, Latvian aviation industry, driven by airBaltic, has exceeded 3% impact to the Latvian GDP, which is a contribution of more than one billion euro per year. We have not only brought millions of visitors to Latvia, Estonia, Lithuania and supported businesses and tourism but also employed nearly 1800 people and have been one of the largest taxpayers in Latvia. Indirectly, airBaltic supports more than 30,000 jobs in Latvia.

The sudden halt of airBaltic’s scheduled operations has been immediately visible. The impact of airBaltic not flying leads to a break in the value chain. There are no passengers at Baltic airports. Transport companies, rental car companies, and shops at the airport have no income. Mail and cargo is arriving slower than before as airBaltic was transporting tons of cargo during our operations. Hotels in the Baltics are empty, and most have had to close. The same is true for local restaurants. The tourism industry is suffering, and no tourists are arriving as long as we do not fly.

This historic crisis has had a dramatic effect on our employees. We were forced to make a hard decision and reduce our workforce by 700 employees, while still retaining more than 1000 employees who are not working while we do not fly. The reason for this downsizing is that airBaltic will not be able to resume operations with the same schedule as before. Each individual employee we are losing now is a tragedy. Employment is one of the key factors for a good economy, and this is why we need to ensure that airBaltic is able to restart again after the crisis is over. We promised our employees to re-employ them as soon as possible, but nobody today is able to say when that will be. However, thanks to our strong cash position, we are able to pay employees until mid-May and provide decent additional compensation, while having nearly no income from scheduled operations.

Once the restrictions are lifted, we intend to start our operations with only five Airbus A220-300 aircraft. We then plan to gradually add one aircraft per week as demand returns. We already made a decision earlier to discontinue flying our Boeing and Bombardier Q400 aircraft fleet. With the new reality, we will bring forward this decision to simplify our operations and restart by offering a product with only the Airbus A220-300. airBaltic still has up to 80 A220-300 aircraft on order, and we will try to negotiate an optimum delivery schedule to support our future growth.

Over time, the demand for travel is expected to return. Therefore, we have adjusted our network so that we can continue providing air connectivity to the Baltics and eventually grow back to our previous levels. As several thousand aircraft are currently parked across the continent, it is very difficult to predict what will happen with European aviation. Bringing these aircraft back into the air will take some time, and it also depends on how individual countries recover from these difficult times. The stimulation of Latvia’s economy will also surely depend on the performance of airBaltic.

We will very likely not restart flights on a number of routes this year. Our network will remain limited for the near future, yet we still intend to continue flying direct flights from not only Riga but also Tallinn and Vilnius.

In the meantime, we are maintaining our fleet in perfect technical condition so that we can fly the aircraft again once possible. This means we have a lot of additional work in the maintenance area. That said, our customer support division has the highest workload in trying to reply to and help each one of our affected passengers.

I highly appreciate our customers’ loyalty to us. Most of you are choosing to change your travel to a later date. We currently have more than half a million passengers booked on our flights for the future. This is a very strong base for us to restart and build up our network again.

We are also looking at our future financing. The potential IPO taking the airline to the stock market is still an option for the future and would support our shareholders in returning some of their investments and at the same time support the company’s future growth.

I hope that all our existing customers understand the difficult current situation and that our future customers will support us by choosing airBaltic again for their travel.

I am leading this airline, and I am very proud and thankful to our team, which stands with airBaltic with all its heart. Our company has done and will do an excellent job for Latvia and the Baltics. Together we will do our utmost to get our green tails back into the skies as fast as we can. We will be back even stronger than before.

Thank you for your support,

Martin Gauss
President and CEO of airBaltic
 









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