Latvia steps in to save national carrier AirBaltic

RIGA, Sept 6 Tue Sep 6, 2011 1:38pm EDT

RIGA, Sept 6 (Reuters) - Latvia will rescue national airline AirBaltic, of which the state owns 52.6 percent, and increase its share capital using taxpayer money, the prime minister said on Tuesday.

The decision came despite Latvia struggling to cut its budget deficit in recent years.

Latvia is nearing the end of an international bailout programme worth 7.5 billion euros ($10.5 billion), which it agreed at the end of 2008 to keep its lat currency stable and plug a yawning budget deficit, which reached almost 10 percent of output in 2009.

This year the budget deficit was expected to be around 4.5 percent of gross domestic product (GDP), falling to below 3 percent next year.

AirBaltic recorded a loss of 34 million lats ($67.2 million) last year and was running in the red in the first five months of this year.

"The main funds could be assigned through amendments in the 2011 budget," Prime Minister Valdis Dombrovskis told journalists.

He said it was important to structure the deal to diminish the need for state investment in the company from the 2012 budget, because Latvia's deficit gap must be below 3 percent by then to satisfy international lenders involved in the bailout.

"The capital increase (required) ... is between 50 and 70 million Latvian lats, which should be invested by both shareholders at the first opportunity," financial consultant Prudentia partner Girts Rungainis told reporters.

The other shareholder of AirBaltic, which owns 47.2 percent shares, is Baltic Aviation Systems. It is jointly owned by AirBaltic Chief Executive and President Bertolt Flick and the Bahamas Taurus Asset Management Fund Limited.

The government had set several conditions for investment in the company, one of which was the removal of Flick. Latvia's transport minister Uldis Augulis said on Tuesday that Flick might be removed as early as this week.

($1 = 0.505 Latvian Lats)

($1 = 0.713 Euros) (Reporting by Aija Braslina; Editing by David Hulmes)