Lufthansa mulls AirBaltic purchase – report

Deutsche Lufthansa AG is looking into acquiring a stake in AirBaltic before the Latvian state-owned airline launches an initial public offering (IPO), insider sources told Bloomberg. Talks are still in the early stages, and no final decision has been made regarding the investment, said the sources, speaking to the news agency on condition of anonymity.

An unidentified strategic investor is in talks with AirBaltic to acquire an initial 10% of the airline’s shares ahead of a public offering, Latvia’s public broadcaster reported without revealing sources. On the news shares of Lufthansa reversed earlier gains and were down 0.5% while AirBaltic bonds rose to their highest level in almost a month.

Hopes for IPO closure by year-end

Air Baltic’s management has been gearing up for an IPO by the end of 2024, though Chief Executive Officer Martin Gauss has indicated it could also occur in the first half of 2025. Lufthansa, AirBaltic and the Latvian Transport Ministry, which is managing the sale, declined to comment on the rumours.

Latvia has said it plans to keep at least 25% of AirBaltic after the IPO. Acquiring a stake in AirBaltic would fit Lufthansa’s approach of building investments in national flag carriers with the option of later increasing ownership. Earlier this year, Lufthansa received approval to purchase a 41% stake in Italy’s ITA Airways, the successor to Alitalia, adding to its existing holdings in carriers in Switzerland, Belgium and Austria.

The German company’s management has stated that it is determined to play a role in further consolidation of Europe’s aviation market. Lufthansa CEO Carsten Spohr met this month with Portuguese government officials as the German airline group weighs a possible investment in state-owned TAP SA.

Lufthansa already linked to Airbaltic

The German airline has operated flights with AirBaltic under a code-share agreement since 2021. Earlier this year, Lufthansa’s Swiss subsidiary used Air Baltic aircraft under a leasing agreement, where Swiss-ticketed flights were operated by the Latvian carrier using its planes and crew.

The Latvian state currently holds 97.97% of airBaltic, with the remainder owned by Aircraft Leasing 1, a company controlled by Danish businessman Lars Thuesen.

Despite previous intentions to float the airline, economic conditions had not made an IPO feasible. Now the Latvian government is committed to completing the IPO within the next four months. The sale will see its stake drop from 97.97% to 25% plus one share.

AirBaltic doing well

The IPO comes on the heels of airBaltic booking impressive financials for H1 of 2024, as the airline reported record-breaking revenues and operational metrics, despite registering a net loss. Airline’s revenues up in H1 According to the latest investor report, AirBaltic achieved a 16% year-on-year increase in revenue, reaching approximately EUR 339mn. The adjusted EBITDAR surged by 39% to nearly EUR 77mn.

AirBaltic’s passenger numbers also rose significantly, with a nearly 11% increase to over 2mn passengers in the first half. The airline has introduced 20 new routes, bringing the total to more than 130 routes and 24 code-share partners.

The airline reported a net loss mainly due to engine shortages, accelerated depreciation costs, and currency depreciation, compounded by one-off costs related to the early redemption of a previous bond.

Air Baltic Corporation AS was founded in 1995, and has a payroll of over 2,500. Its fleet includes 48 Airbus A220-300 aircraft – making it one of Europe’s youngest fleets, and well-positioned to attract potential investors.