May 2024 has turned out to be a crucial year financially for airBaltic.
Not only did the Riga-based airline post its highest ever profit in 2023 (€34 million), it also successfully completed the largest bond issue in Latvia’s history.
While an interest rate of 14.5% will raise some eyebrows, the €340 million that airBaltic raises in this way will likely steer the airline out of some fairly significant financial difficulties.
The majority of the proceeds will go towards repaying an outstanding €200 million bond maturing in July 2024, with a further nearly €40 million to pay back state aid funds provided to the airline by the Latvian government during the COVID-19 pandemic.
This will give the airline €100 million, which will be used to fund a series of fairly ambitious projects, from the continued expansion of its fleet to rolling out Starlink to its entire fleet.
AeroTime spoke with airBaltic CEO Martin Gauss during the IATA Annual General Meeting (AGM) in Dubai in early June 2024, and asked him what the bond issue means for the airline’s future and its long-awaited IPO.
“Right now we’re focused on what we want to do, which is prepare for an IPO,” Gauss explained. “Depending on how the financial community looks at it, the IPO could happen later this year or in 2025. If they say, ‘this year is good,’ then we’ll do it this year. If not, it could be next year or even 2026.”
“We have time until 2029,” Gauss added, referring to the grace period provided by new bond issuances maturing in 2029.
Gauss dismissed concerns about higher interest rates on the new bonds.
He said that while this type of high-yield bond issuance may not be common in Europe, it is not uncommon in many other parts of the world, and noted that the bond was oversubscribed, with the final order book reaching €800 million.
“For months, people kept telling us it would be difficult to issue the bond,” he said. “We never responded to that. We just kept working professionally with the banks and issued the bond at a lower interest rate than expected.”
He added: “The bond was significantly oversubscribed by top tier international investors. There are always rumours, people are always going to say something, but we have presented the facts all this time.”
“We did it and it was a huge success,” he added. “That’s why we’re now focused on the IPO and growth, because we’re the only airline that can double our fleet over the next five years and has the order book to do so. We currently have 100 A220s secured for us, which we’re due to receive through 2029.”
“We’re growing from a small airline to a mid-size airline. That’s where we are today.”
Gauss compared airBaltic’s recent financial moves to other complex and bold deals in the company’s history that ultimately paid off.
“I remember in 2012 I bought an aircraft that was called a CS300, now an A220. [the Bombardier C-Series was subsequently acquired by Airbus and renamed the A220 – ed. note]”People said, ‘What are you going to do with this?’ ‘Why not buy this or that?’ Today we are the largest customer and the most successful customer for this aircraft,” Gauss said.
“Some people may be envious of Air Baltic’s success, but you have to live with it,” he added.
Gauss then cited several of the airline’s recent and past success stories.
“We recently won the AI Innovation Award in Orlando for Revenue Management. Later this year, we will be the first European airline to equip our A220s with SpaceX’s Starlink,” he said. “We are a premium provider of aircraft wet leasing services. We currently have eight aircraft in Switzerland and work with Lufthansa Group’s premium brands. Our Net Promoter Score (NPS) is 66, the only airline with such a score.” [an] “Our NPS score in Europe is a big highlight of what we’re doing as an airline.”
“And we have a history of never having been through Chapter 11 or bankruptcy,” he continued. “For 28 years, this airline has paid every bill on time. Nobody can tell you that we’ve had defaults. We’ve never been through bankruptcy or any of the other things that other people have done.”
He added: “I’m very proud. Now that the bond has been issued, [are going] Another challenge is the IPO. IPOs are not easy. But we have a success story to tell, despite our debt-laden balance sheet from the past. Other airlines might say, “Okay, we’re going to [will] “People are talking about restructuring, bankruptcy, starting a new airline or even filing for Chapter 11 bankruptcy. But airBaltic is not going to do any of that. We are going to do this structurally.”
Gauss has been at the helm of the airline for more than 12 years and has led it through at least two major crises.
“Hopefully within the next two years we’ll have 100 aircraft, an IPO and demonstrate success,” he said.
“And there’s more to come,” he continued, adding that it won’t be made public yet.
As for the timing of an IPO, Gauss remained tentative.
“There’s still plenty of time to get the IPO done this year,” he said. “The timeline is tight, but that’s why if we were to do an IPO later this year, it would be towards the end of the year.”
“We’ve done a lot of preparation during the bond issuance process – preparing the prospectus, law firms, banks – everything is going well,” Gaus explained, “but there’s still some technical work to be done before we can announce the IPO.”
“Right now we’re going through that process. But it’s entirely possible that at some point this year we’ll have to say we’re no longer targeting the second half of this year, but are now targeting 2025 or 2026. That’s why we say the window of opportunity is between now and the end of 2026.”
Gauss said he expects further growth, adding that “the numbers support our model.”
The airline’s fleet is expected to reach the 50 aircraft milestone by the end of 2024, before doubling to 100 between 2025 and 2029.
Gauss confirmed that airBaltic has signed a Letter of Intent (LoI) to wet lease nine of these aircraft.
“We went through the COVID pandemic, but it didn’t significantly delay deliveries. We picked up everything,” he said. “We disposed of the other aircraft. [airBaltic retired or sold all its B737-500s and Bombardier Q400s to become a single-type, all-A220 operator – ed. note]Last year, the company achieved its best ever performance in its 28-year history, and has forecast this year to be another record-breaking year.
“I know there’s always going to be people who say these guys are doing this and that, but we used to be an airline flying Fokker 50s and old turboprops in the middle of nowhere, and now we’re an airline that’s highly respected in Europe for what we do. We’re leaders in innovation. We fly the latest jets, we have the latest satellite systems, we have Net Promoter Scores that are unreachable in Europe.”
The pressure that Air Baltic has been under over the past few months as it has scrambled to secure additional capital came up again during the conversation, with Gaus criticising the way local Latvian media have covered the bond issuance process.
“I think everything is going well right now,” he said. “It’s not easy in a bond issuance process when the public doesn’t understand what they’re doing and you’re in the media spotlight and you go in and it’s not normal, so I’m happy to be talking about this now.”
He added: “I’ve never seen an airline reported on a bonding process like this. We were put through the process, which is not something you normally see. But it was a very unusual process because the local media, which is very closed off, were spreading the story. It was unprofessional for us, as we shouldn’t comment on such procedures.”
“Finance law says we can’t say certain things,” he continued, “but we kept commenting because the public demanded it. In the end, everyone was surprised by how many applicants we received, far more than we expected.”
Airlines executives quickly began talking about one of their favorite topics: innovation and technology, specifically the rollout of Starlink connectivity, the airline’s flagship project in this area.
“We’ve been waiting for STC approval, which is expected in the fourth quarter of this year,” Gauss explained, “and then we’ll roll it out very quickly to all of our aircraft.”
“It’s a very simple installation, so it will take three to six months to install the whole fleet,” he said. “Starlink is different from other satellite systems in that it doesn’t require any wiring. You just need one connection to an edge compartment where you have an antenna, a router and a power source, and that’s it.”
“It’s already been tested,” Gauss added. “The prototype will fly shortly. It doesn’t ask for a login or password, so you can just use it. Again, this worked well over two years ago, but nobody talked about it. Qatar Airways has announced a similar initiative in Hamburg, which means they are following in our footsteps. We’ve spoken to them about it, and we’ll be leading the world in something again.”
Before wrapping up the meeting, Gauss said a few more words to critics and then concluded with a statement reflecting a positive outlook for Air Baltic.
“We say a lot and we do it all the time. We get negative feedback all the time, but maybe this is normal when you’re the biggest exporter in the country, the biggest company and an iconic brand,” he said. “There’s jealousy too. Some people don’t like X. [are] Spread the word, a small community is exposing it. But I always say, read back all the statements I made since I took over the company when it went bankrupt in 2011. We had B757s, Fokker 50s, B737 classics, but come today and look at the airlines. Look at all the statements I made. That’s all I can say.”
“It all comes down to execution,” he added. “I’m definitely a leader when it comes to execution and people are going to continue to look at that.”
