State paves way for Air Serbia recapitalisation
The Serbian government has adopted a decree which would enable it to recapitalise Air Serbia with over 250 million euros in funds. The policy foresees assistance for both state-owned a private enterprises which were profitable at the end of last year and can prove they would go bankrupt or be in significant hardship without the recapitalisation. Back in April, the country said it would provide financial support to its national carrier either through recapitalisation or corporate bonds, in order to mitigate the effects of the coronavirus pandemic. Recapitalisation entails changes to the airline’s capital. This may occur, for instance, when a creditor exchanges a loan for a stake but does not require changes to the company’s management structure.
The decree adopted by the government comes with several conditions attached. Through recapitalisation, the state can increase its share in the company, which it can later sell back to the said company at any time or another entity. It also foresees for the aid to be paid back over a certain period of time with interest. However, if the company in question is state owned, after two years, an independent appraiser may determine that the value of the recapitalisation was positive, suggesting the beneficiary would be freed from repaying the financial assistance, although the decree is not clear on this point. Other conditions include a ban on bonuses for the top management and employees until 75% of the assistance is repaid.
In June, the Serbian President, Aleksandar Vučić, said, “We are holding talks with the shareholders [of Air Serbia] from the United Arab Emirates and soon we will know what action needs to be taken. We will request for them to provide part of the finances for the losses that have been incurred over the past four months. These are massive losses. We are ready to provide part of the funds too. If they [Etihad] don’t want to, we are ready to recapitalise the company and take a greater stake in the airline as a result. We won’t give up on building up the company”. The President hinted that if Etihad were to fully or partially exit the airline, another strategic partner could be brought in. “We might introduce some other strategic partners, but we will continue to hold a majority stake. Air Serbia will be our flag carrier and it will be stronger than it is today”, Mr Vučić noted.
The strategic partnership agreement between Etihad Airways and the Serbian government, unveiled in August 2013, saw the Emirati airline make available a forty million US dollar loan facility to Air Serbia which was converted into equity on January 1, 2014 for a period of five years. This was matched by an equal funding injection by the Serbian government. The two sides each provided further funding through shareholder loans and other funding mechanisms to meet working capital requirements and support network development. The five-year deal was later extended until further notice, however, Etihad’s involvement in Air Serbia has been significantly reduced, with the state providing subsidies and funds for the airline over the past few years. Etihad registered an 870 million US dollar loss in 2019 and its equity investments in carriers around the world have unravelled in recent years.
On Monday, Air Serbia marked the seventh anniversary since launching operations under its new name and brand. The carrier’s CEO, Duncan Naysmith, said, “For seven years now, Air Serbia has represented the main pillar of the development of tourism in the country and has been contributing to the dynamic growth of air transport, connection with the region and strengthening the national brand. Our birthday comes in specific circumstances, having in mind that we are in the biggest global aviation crisis in recent history. We are aware that challenging times are ahead of us. However, I am convinced that, by quickly adapting to changes, managing our resources rationally, constantly introducing innovations, and primarily, through dedicated work and commitment of our employees, we will manage to turn the present challenges into fuel which will drive our engines, full steam ahead”.
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