An unidentified investor is looking to invest in Nordic Aviation Group AS, dba Nordica (ND, Tallinn Lennart Meri), and has submitted a bid to the current shareholder, marking a significant move towards the airline’s privatisation, Chief Financial Officer Gabriel Rusu revealed in an exclusive interview with ch-aviation as the carrier attempts to navigate the difficult situation it was put in after its subsidiary, Xfly (Estonia) (EE, Tallinn Lennart Meri), lost its largest ACMI contract - with SAS Scandinavian Airlines (SK, Copenhagen Kastrup). Meanwhile, Nordica is on track to secure the deployment of 75% of capacity during the Winter 2024/2025 season.

“Most importantly, there has been significant progress towards the privatization of Nordica, as an investor who recognizes the upward trajectory we’re on and shares our vision for the future has sent their offer to the shareholder,” he stated and pointed out that the company remained profitable for the fourth consecutive month in September, showing improvements both against last year as well as compared to this year's budget.

Between January and September 2024 Nordica’s net loss was EUR5.3 million euros (USD5.8 million), compared to a loss of EUR11.9 million (USD13 million) recorded for the same period last year. “The figure marks an improvement of EUR 6.6 million (USD7.2 million),” Rusu noted.

“The approved budget for 2024 included a loss of EUR7.9 million (USD8.65 million) for the first nine months of 2024, so the actual performance is an improvement of EUR2.60 million (USD2.85 million),” the CFO said. “In this context, reporting four profitable months in row which add to EUR 2.999 million (USD3.28 million) is a very positive sign.”

Improved performance from mid-2024

The comments from Rusu come as Xfly seeks new ACMI contracts, following the decision of its largest client, SAS, to terminate its one with the Estonian company as of November 1. The decision from SAS followed its announcement of a comprehensive seven-year ACMI contract with BRA - Braathens Regional Airlines (Stockholm Bromma).

Discussing Nordica’s transformation, Rusu said “just when we were climbing to new altitudes, a strategic decision was made by one of our major clients that chose to pursue other developments starting this autumn”, and added that the move “was a jolt, but not a blow” to the Estonian carrier.

Nordica has been the subject of privatisation attempts for a while, as liquidity was an issue throughout 2023. A November 2023 special report from the Climate Ministry, whose portfolio the Nordic Aviation Group AS is a part of, stated that the company had achieved poor results as a result of contract terms that are detrimental to the company and fail to adhere to the general practice in the aviation market; an overly complex organisational structure; contracts improperly implemented; and an overly complex fleet structure.

After that memo, reorganization efforts ensued, and, as Rusu explained, the company turned to profits over the summer.

He explained that improved results came in 2024 after the company pushed to address two key issues: flight cancellations and “the relatively low rates” Nordica was paid for its services.

As a result, Rusu added, statistics show that the Estonian carrier reduced cancellations during the peak summer period by 90% between May and September 2024 compared to same period last year. Nordica cancelled 1,096 flights between May and September 2023 and only 115 between May and September 2024.

He explained that improved results came in 2024 after the company pushed to address two key issues: reducing flight cancellations and increasing “the relatively low rates” Nordica received for its services.

“In December 2023, we introduced an incentive structure that rewards each member of the team for meeting and exceeding flight regularity targets. During the last 10 months since we implemented this incentive structure, each team member qualified for an incentive pay 8 months, a vast improvement compared to the past. In short, in 2024 we flew better. I would say much better, also considering the improvement in our flight punctuality that now stands between 98.6% and 99.2%.”

Thus, fewer cancellations helped revenue. “We implemented a significant number of cost reduction initiatives. Some of these were painful, yet necessary: between May and July 2024 we downsized the head office staff by ca. 15%,” Rusu stated.

Contract renegotiation helped significantly in improving the financial results, addressing the loss-making contract which the auditors singled out in the 2023 financial report.

The issue of the 2023 financial report

As ch-aviation reported earlier, Nordica and its subsidiary, Xfly, were reprimanded by Estonia’s business registry for not publishing their financial statements for 2023. Nordica published its unaudited report on September 3, revealing that the company, whose largest shareholder is formally Estonia’s Climate Ministry, suffered a total net loss of EUR 19.146 million (USD21.15 million) in 2023. This followed a profit of EUR1.5 million (USD1.65 million) in 2022.

“During the completion of the 2023 financial audit, our external auditors determined that one of our most important commercial contracts was onerous, as the revenue generated could not cover the costs. It is estimated that this contract account generated a loss of EUR6.9 million (USD7.55 million) during the first months of 2024. This is one of the main reasons for which our auditors could not complete last year’s financial report,” Rusu told ch-aviation.

He went on to explain that the root cause of the loss reported for the first four months of 2024 was the fact that the cost increase was much higher than anticipated when the contract was signed in May 2023. “According to the Estonian accounting standards, we must recognize this loss of EUR6.9 million in the 2023 financials and report the 2024 results free of the effect of the onerous nature of this contract. In this context, the Year-to-date September 2024 result is a profit of EUR1.6 million (USD1.75 million),” he added.

In its unaudited financial report, Nordica noted that had implemented “immediate and appropriate measures” to improve its financial performance, including contract renegotiations and increasing efficiency through improved operational performance.

The search for new ACMI partners

After the cancellation of its contract Nordica’s largest client, Rusu remains optimistic. “The results speak for themselves: despite operating a lower volume of flights in 2024, the team’s increased focus on customer care, operational robustness and financial sustainability carried us to profitability,” he noted.

“Today, as we navigate this shift, Nordica is actively pursuing new partnerships and markets. We are on track to secure the deployment of 75% of our capacity during the Winter 2024/5 season. We are further restructuring to maximize our strengths and ensure sustainable growth. Our incentive payments continue, reflecting our commitment to reward performance and uphold our culture of excellence”.

“We are a resilient organization that thrives on turning challenges into opportunities. With every unexpected turn, we have adapted, recalibrated, and continued to innovate. As a result, yesterday we counted 2,490 flights operated since September 15, 2024 with only 8 cancellations, which is a fantastic 99.7% flight regularity performance” he stated.

“Our journey is far from over, and the best is yet to come,” he stated.

Privatization update

Rusu’s comments come after Nordic Aviation Group board member Sander Salmu told the Estonian broadcaster ERR that Nordica would be facing bankruptcy unless it finds sufficient alternative customers following the SAS contract cancellation. The Management Team was tasked by the Supervisory Board to prepare and present a business plan by October 15, which has already been completed. “That same business plan has been presented to and approved by the investor group that, based on this document, has already sent their investment offer with regards to the privatization of Nordica,” Rusu said.

Nordica operates a single A320-200, currently under wet-lease with Bamboo Airways, ch-aviation data shows. Meanwhile, Xfly has a fleet of six ATR72-600s and eight ACV!CRJ900ERs. All but two of the ATR aircraft were part of the SAS contract, as well as seven CRJs. One of the latter aircraft type is operating for Widerøe (WF, Bodø) under an ACMI deal.