Estonian Air Ceases Operations Following EU Subsidies Ruling

By Liis Kängsepp And Juris Kaža

EU ruled the airline repeatedly benefited from illegal government subsidies

TALLINN, Estonia—State-run Estonian Air ceased all operations Saturday, hours after the European Union ruled the airline repeatedly benefited from illegal government subsidies, and as authorities of the small Baltic nation rushed to create a new flag carrier.

The government of Estonia acknowledged it received a notification from the European Commission, the EU’s top antitrust regulator, ordering it to recover €85 million ($91.3 million) it pumped into the airline over the past five years.

Earlier Saturday, the European Commission said Estonia’s “repeated public support” for its national carrier didn’t enable it to become viable again and didn’t limit distortions to competition.

In response, the government said that since Estonian Air didn’t have €85 million to pay back the state, it saw no alternative but to close the airline.

“In this situation it is pretty obvious and clear that Estonian Air is terminating its operations,” Estonia’s Transport Minister Kristen Michal told reporters.

Mr. Michal said the government and Estonian travel agencies would assist passengers in reaching their destinations on other airlines over the weekend. He said the government was also launching a new state-owned company, Nordic Aviation Group, which will begin offering flights through other carriers as early as Sunday.

Estonia, like its Baltic neighbors Latvia and Lithuania, has strained to keep a national airline in business. But the country says that while its relatively small population and geographic position on the outskirts of Europe make it difficult to operate profitable routes, a network of airline connections is necessary to keep Estonia on the map.

“We need an airline that is based in Tallinn,” Estonia’s Prime Minister Taavi Roivas said recently.

At Estonian Air, Chief Executive Jan Palmer said he regretted the airline wasn’t given more time. “We could have been sustainable in the future,” he said. “The company should have been allowed to be able to continue.”

But analysts said the Baltic region was too small to accommodate three competing national airlines.

“One airline is enough for the Baltic countries,” aviation-industry analyst Talis Linkaits said. “Efforts to replace Estonian Air are likely to meet with the same fate.”

Shortly after Estonia announced it was closing Estonian Air, Latvia’s state-controlled A/S Air Baltic Corp. issued a statement pledging to open more routes from Tallinn under open-skies rules.

Originally published on WSJ.com