The state has not monitored the recovery of investments made in Latvia’s national airline airBaltic during the Covid-19 crisis and has so far acted more like a “wallet to dip into” than a sufficiently qualified and demanding shareholder, according to the State Audit Office (SAO).
The SAO conducted a follow-up review of the recommendations issued in its 2021 audit concerning the state’s oversight of investments made in airBaltic during the pandemic.
Latvia’s total investment in airBaltic’s share capital amounts to 545 million euros. Of this, 340 million euros was invested between 2020 and 2022 to mitigate the consequences of the Covid-19 crisis, increasing the state’s ownership from 80.05% to 97.97%.
The SAO concluded that none of the oversight bodies – the Ministry of Transport (MoT), the airBaltic Supervisory Board, or the Cabinet of Ministers – have taken sufficient action that might support the recovery of the state’s investment.
The State Audit Office reminds that the government initially committed to recovering 250 million euros in the first stage of investment. This was clearly stated in official documents and public communications until June 2023. According to a strategy approved by the Cabinet in 2021, the recovery was planned through an initial public offering (IPO), during which a portion of the state’s shares would be sold, reducing its holding to 51%.
However, the SAO found that the strategy lacked a concrete action plan. The fact that the approved strategy has not been revised, despite significant developments — including the second wave of the pandemic, Russia’s full-scale invasion of Ukraine, aircraft engine issues, and repeated changes in airBaltic’s business plans — demonstrates this. Meanwhile, the state invested an additional 90 million euros in the company.
In August 2024, the government decided to reduce airBaltic’s share capital by 571 million euros — a move the company views as crucial for a successful IPO. After this decision, officials and airBaltic representatives publicly and unjustifiably claimed that recovery of the investment had never been planned or that state support had already paid off via taxes and economic contribution, the SAO notes.
The support to airBaltic was provided under the then-applicable EU Commission regulation, meaning the company was in a “state aid situation.” This required compliance with specific restrictions, such as on executive compensation. According to the SAO, the main objective of exiting the state aid regime is to reduce state involvement in the company. However, it is Latvia’s own decision whether to recover the funds invested during Covid-19. The current Temporary Framework allows for other exit mechanisms, including those where the investment is not recovered. Yet, the government has not approved any such strategy.
In addition, countries could set stricter requirements than those mandated by the EU — Latvia chose not to. Although in 2020 both the public and government were informed that airBaltic executives voluntarily cut their salaries by 20% during the initial pandemic phase, the audit found that the amount was only withheld temporarily and repaid in January 2022 at the board’s initiative.
In 2021, the SAO urged the Cabinet to define a special procedure for managing the risk of not recovering the state’s investment in airBaltic.
This was not implemented, and oversight continued under 2015 regulations.
Until December 2024, reports submitted to the Cabinet about airBaltic’s actual situation were prepared by the company itself. Unless the reports were linked to additional investment requests, they mostly highlighted the airline’s operational achievements and omitted financial risks, the SAO found. Most reports were not made public, reducing transparency. The Cabinet’s oversight was not based on structured analysis of key performance indicators that could have tracked progress or revealed necessary corrections.
Meanwhile, the Ministry of Transport still has not developed a governance system for state-owned enterprises that would enable the state to pursue strategic sector goals and ensure efficient use of resources. The ministry continues to lack access to essential information needed for proper oversight, such as data on employee salaries or capital expenditures.
The SAO assesses that the ministry reacts inadequately even when it does receive relevant information. It also fails to participate effectively in defining financial and non-financial targets.
The airline’s Supervisory Board has also fallen short in monitoring executive pay caps. Despite financial difficulties, executive compensation increased. In 2022, bonuses were paid to the board from state funds invested during the pandemic, for performance in 2019.
It was also found that the tasks assigned to responsible institutions were not carried out purposefully enough to allow the state as a shareholder to monitor airBaltic’s financial health and business plans with the aim of recovering its investment. Strategic alternatives for the state’s role have not been evaluated, leaving the management with wide discretion.
The most significant changes to airBaltic’s business plans occurred in July 2023, with the adoption of a new plan aimed primarily at enabling a successful IPO. The company believes that growth is essential for financial sustainability and continued operation.
However, the growth directions and actual fleet utilization have not been clearly defined. These elements remain dependent on market and external conditions. The plans are based on a series of assumptions — including regional growth — and the ambitions are not fully backed by available funding.
The state’s involvement in business planning remains insufficient, the SAO stresses. In relation to the latest business plan, authorities did review and comment on it, which included two fleet size scenarios. The Supervisory Board did not disclose which scenario was chosen or why. The Ministry only requested the current plan when it was needed for submission to the SAO.
State Auditor Mārtiņš Āboliņš explained that the business plan’s viability must be seriously evaluated. “The company’s financial situation is difficult — last year and this year began with losses, it has negative equity, and the IPO has been repeatedly postponed. It’s no longer realistic to recover the investment through an IPO. On the contrary, the company now openly signals the need for further state funding — without which the IPO is unlikely,” he said.
He also pointed out that although the airline has expanded rapidly and achieved its planned fleet size, its financial position has deteriorated. “In our view, further state investment under the current model — without evaluating its viability — is unjustified. We urge the Ministry of Transport, the Supervisory Board, and the Cabinet to seek rational, economically sound alternatives for the company’s future,” said Āboliņš.
In November 2022, for the first time, the state defined its strategic goal for airBaltic participation — to enhance Latvia’s international connectivity through passenger and cargo air transport. However, the ministry has yet to develop a document detailing this goal.
airBaltic’s growth plans insufficiently account for potential risks that could affect the value of the state’s investment, and the state has not demanded this. According to the SAO, the state has so far acted more like “a wallet to dip into” than a qualified and demanding shareholder.
Currently, Latvia owns 97.97% of airBaltic shares, and 2.03% belong to financial investor Lars Thuesen’s Aircraft Leasing 1.
In 2024, the airBaltic group posted audited losses of 118.159 million euros, compared to a profit the previous year. However, its turnover increased by 11.9% year-on-year to 747.572 million euros.