Exclusive-Latvia in talks with strategic investor for ailing airBaltic, PM says

By Andrius Sytas

RIGA, July 17 (Reuters) - The Latvian government is negotiating with a strategic investor for struggling state-controlled airBaltic, Prime Minister Andris Kulbergs told Reuters, as the carrier seeks to shore up its finances and avert the risk of a default.

The comments come ahead of an August 3 meeting at which airBaltic, in which Germany's Lufthansa has a minority stake, will seek short-term financing from bondholders.

"We are talking with a serious partner, yes, I can disclose that," Kulbergs told Reuters in a wide-ranging interview on Thursday, declining to name the company.

"It is a matter of this summer to execute... We have to go through necessary steps in order to make the company ready for a strategic investor... If that happens, then airBaltic will fly," he said.

Latvia's main condition for any investor would be maintaining airBaltic's hub at Riga airport, where it is the largest airline, said Kulbergs.

"I think it's a very good proposal (for the investor)," he added, dismissing questions about what stake a potential investor could take in the carrier.

AMBITIOUS GROWTH TARGETS

AirBaltic did not specify in its notice about the August 3 meeting how much funding it needs to raise.

Fitch Ratings said in a note last week that it has yet to repay a €30 million ($34 million) short-term loan from the Latvian government due in August and failed in June to replenish a reserve account required under its 2029 senior secured notes.

AirBaltic's financial strains highlight how rising costs since the start of the U.S.-Israeli war with Iran have exposed structural issues at some airlines, fuelling investor concerns about their ability to meet debt obligations.

The carrier, which operates a fleet of 55 Airbus A220-300 aircraft and aims to almost double that number by 2030, has repeatedly postponed plans for a stock market listing because of engine delivery delays that have grounded many of its planes.

Management would present a new business plan next week outlining restructuring measures needed to put the airline on a sustainable footing, Kulbergs said.

"The (business) plan requires a lot of components to happen. One of them is cash, the other is the strategic investor."

He added that airBaltic's growth targets had become unrealistic after losing access to the Russian and Ukrainian markets following Moscow's war in Ukraine. The COVID-19 pandemic and the Middle East crisis had also weighed on its operations, he said.

(Reporting by Andrius Sytas in Vilnius; Editing by Emelia Sithole-Matarise)