Air Baltic launches $416.4 million restructuring program

Air Baltic (BT) is implementing a new restructuring plan, ReShape, to return the struggling airline to profitability and sustain future development at its North Hub Riga. The program, which aims to reduce costs by 16%, includes fleet modernization, cost optimization, operational efficiency, revenue enhancement and network improvements.

BT CEO Martin Gauss told in Berlin that the airline has achieved “unprecedented growth” in the last few years. However, it came at a cost to the airline.

“We made the biggest loss in our history in 2011, about €100 million ($131.2 million). And we have to realize yields will be further shrinking,” he said. BT is focusing on achieving LVL330 million ($619.6 million) of improvements in the next five years. BT is estimating a 2012 loss of LVL38 million and a loss of LVL16 million in 2013.

In December 2011, the Latvian government acquired the 47.2% stake in BT previously held by Baltijas Aviacijas Sistemas (BAS). It now owns 99.8% of the Riga-based carrier.

Gauss said the airline expects to return to profitability in 2014. “Nevertheless, growth rates will be smaller compared to the past. [The] outlook in passenger numbers also remains conservative, for example, from 2.4 million in 2011 to 4 million by 2016,” he said.

BT will reduce its workforce 15% through 2012. The carrier has grounded six of 10 Fokker 50s, which will be completely phased out by the fall, a year earlier than originally planned. Leases on several Boeing 737-300s will also expire. Two 757-200s will be taken out of service and will be leased out until 2016.

“We are currently in the final talks with Airbus and Boeing regarding an order for A319s or 737-700s,” Gauss said, and a decision should be made over the summer. The airline hopes to take delivery of the first aircraft by 2015, he said. “As an interim solution, we will introduce leased A319s or 737NGs to be able to reduce fuel by 15% until we get our own new aircraft,” he said.

BT is open for talks with alliances and the Latvian government does not want to retain long-term ownership of the airline.

BT serves 60 destinations with a fleet comprising six 737-500s, eight 737-300s, two 757-200s, 10 Fokker 50s and eight Bombardier Q400 NextGens.