May 2024 proved to be consequential for airBaltic on the financial front.
The Riga-based airline not only posted its highest profit ever (€34 million) for 2023, but it also managed to successfully place the largest corporate bond in the history of Latvia.
Although the 14.5% interest rate has raised some eyebrows, the €340 million airBaltic has raised this way will allow the airline to save a rather critical financial match-ball.
The bulk of the proceeds will be used to repay an outstanding €200 million bond that is due to mature in July 2024, with another close to €40 million allocated to return state support funds issued to the carrier by the Latvian government during the COVID-19 pandemic.
This leaves €100 million in the hands of the airline, which will be used to fund a string of rather ambitious projects, from its continued fleet expansion to the roll out of Starlink on all its aircraft.
AeroTime met with airBaltic’s CEO Martin Gauss in early June 2024 during the IATA Annual General Meeting (AGM) in Dubai and asked him what the bond placement means for the future of the company and its long-awaited IPO.
“Now we are focused on what we wanted to do, which is preparing for the IPO,” Gauss explained. “It could happen, potentially, in the second half of this year or in 2025, depending on how the financial world sees it. If they say ‘okay, this year is good,’ then we do it this year. If not, next year or even in 2026.”
“We have until 2029,” Gauss added, referring to the breathing space provided by the new bond issuance, which matures in 2029.
Gauss dismissed concerns about the new bond’s higher interest rate.
He said that while the type of high yield issuance may not be common in Europe, it isn’t unusual in many other parts of the world. He also mentioned that the bond was oversubscribed, with the final orderbook reaching €800 million.
“There were people who kept saying for several months that issuing a bond would be difficult,” he said. “We never replied to that. We just kept working professionally with the banks and we placed the bond at a rate which was below our expected rate.”
He continued: “The bond was heavily oversubscribed by top-notch international investors. I know that there are always rumors, people always try to say something, but during all these years we have always shown facts.”
“We did it, and we did it very successfully,” he added. “Therefore, we’re now focusing on our IPO and on growth because we’re the only airline which can double its fleet size in the next five years and has the order book to do it. We now have 100 A220 aircraft earmarked for us, which we will be getting until 2029.
“We are growing from a small to a midsize airline. So, that’s currently the story.”
Gauss compared the airline’s recent financial moves with other complex and daring deals in airBaltic’s history that have ultimately paid off.
“I remember when we bought an aircraft in 2012, which was then called the CS300. Today it is the A220 [the Bombardier C-Series was subsequently acquired by Airbus and renamed the A220 – ed. note],” Gauss noted. “People said, ‘what are they going to do with this?’ ‘Why are they not buying this or that?’ Today we are the largest operator in the order book of this aircraft, the most successful operator with it.”
“You have to live with people who may sometimes feel envy because of the successes of airBaltic,” he added.
Gauss then went on to list some of the airline’s recent and past successes.
“We got an AI Innovation Award in Orlando recently for our revenue management. We are having SpaceX Starlink onboard our A220s at the end of this year, the first airline in Europe to do so,” he said. “We are a premium provider of wet lease services with our aircraft. We now have eight aircraft based in Switzerland, working with a premium brand of Lufthansa Group. We have a Net Promoter Score (NPS) of 66, the only airline with such [an] NPS score in Europe. There are so many highlights of what we do as an airline.”
“And there is a past, in which we never did a chapter 11 or any bankruptcy proceedings,” he continued. “For 28 years, this airline has paid every bill on time. Nobody would be able to come to you and say we ever had a default. We never went through bankruptcy and all these other things that others have done.”
He added: “I’m very proud of it. Now, since the bond is placed, we [are going] for another challenge, which is the IPO. The IPO is not easy to do. But we have a success story, which needs to be told, despite a balance sheet which has a debt from the past. Some other airlines would just say ‘okay, we [will] do restructuring. We go bankrupt. We create a new airline, or we enter chapter 11’. But no, airBaltic is not doing any of that. We go through this in a structured way.”
Gauss has been at the helm of the airline for more than 12 years, steering the company through at least two major crises.
“Hopefully we will finish in the next two years with an IPO, with 100 aircraft and showing our success,” he said.
“And there’s more to come,” he continued, before adding that it would not be revealed to the public quite yet.
With regards to the timing of the IPO, Gauss was tentative.
“There is still enough time potentially to complete the IPO this year,” he said. “It’s a tight timeline. But that’s why, if we do it in the second half of this year, it would be towards the end of the year.”
“We have done a lot of the preparation for it during the bond issuance process – the prospectus work, the law firms, banks…all of that is good,” Gauss explained. “But there’s still some technical work before we announced the IPO.
“We are in this process now. But it could well be that we have to say at a certain time this year that we are no longer targeting the second half of this year and that we are aiming for ‘25 or ‘26. That’s why we say that we see a window from now to the end of 2026.”
Gauss also pointed out that he is expecting further growth. “The numbers support our model,” he said.
The airline’s fleet will reach the 50 aircraft milestone by the end of 2024 and the fleet is then expected to double between 2025 and 2029, reaching 100 aircraft.
Gauss confirmed that airBaltic has signed Letters of Intent (LoI) to place nine of these aircraft on wet leases.
“We went through COVID, and we didn’t delay our deliveries significantly. We just took all of them,” he said. “We got rid of other aircraft [airBaltic retired or sold all its B737-500s and Bombardier Q400s to become a single-type, all-A220 operator – ed. note]. We had a record result last year, the best in 28 years of history, and this year we gave guidance that it will be a new record year.
“I know that there’s always people out there who say these guys do this or that, but we were an airline flying Fokker 50s and old turboprops in the middle of nowhere and today, we are an airline which is very well respected in Europe for what we do. We are an innovation leader. We fly the most modern jet, we will have the most modern satellite system and we have a net promoter score, which is unreached in Europe.”
The pressure of the last few months, in which airBaltic has raced to secure additional capital, re-emerged in the conversation, with Gauss being critical of the way the bond issuance process has been covered in the local media in Latvia.”
“I think it is all good now,” he said, “and I’m happy that I can talk like this now because it’s not easy when you are in the bond process and the public takes part, not understanding what you’re doing, with a lot of media attention, which is not normal.”
He added: “I haven’t seen any airline being reported on their bond process like this. We were followed in the process, which is something you would normally never see. But because of a very closed local media, which was spreading the word, this was a very unusual process. It was not professional for us, because we should not be commenting about such a process.”
“Financial law says you cannot say certain things,” he continued. “But we had to comment and comment and comment because of the demands from the public. At the end of the day, everybody was surprised that it was heavily oversubscribed.”
The airline executive soon switched to one of his favorite topics – innovation and technology, particularly the airline’s flagship project in this space: the rollout of Starlink connectivity.
“We were waiting for the STC approval, which is expected in Q4 this year,” Gauss explained. “And then we will roll it out very fast on all our aircraft.”
“It will take three to six months to do the whole fleet because it’s a very simple installation,” he said. “Starlink is different from other satellite systems since it doesn’t need all the wiring. So, you only have the antenna, the routers and one connection to the end compartment where the power is. And that’s it.”
“We did test it already,” Gauss added. “We’ll have a prototype flying soon. We will not ask for login or any password, so it will just be available. This is also something we did well more than two years ago, but nobody talked about it. Qatar Airways just announced in Hamburg that they will do it as well. So, they’re following us. We even discussed this with them and, yeah, we will again be leading in the world on something.”
Before closing our meeting, Gauss had a few more words for the critics before ending with a statement reflecting his positive outlook for airBaltic.
“We say a lot of things and we always deliver. We always get some negativity, but this is probably normal when you’re the number one exporter, one of the largest companies and the iconic brand in the country,” he said. “There is some envy. Some haters on X [are] spreading the word and a small community publishing it. But I always say go back read all the statements I have made since 2011, when I took over a company in bankruptcy. We had B757s, Fokker 50s and B737s Classics and then, come today and look at the airline. Look at all the statements that I made. That’s all I can say.”
“It is all about execution,” he added. “I’m definitely a leader when it comes to execution, and I guess people will see this also going forward.”