Estonian Air lands new partner

The Baltic Times, TALLINN
Dec 10, 1998
By Kairi Kurm

Clients of Estonian Air can soon benefit from greater travel opportunities and bonus flights thanks to a cooperation agreement with new partner Scandinavian Airlines System.

Estonia’s national carrier, Estonian Air, signed a long-term cooperation agreement with SAS Dec. 2. On the basis of the contract, Estonian Air will from March 28, 1999 be a member of SAS’ EuroBonus frequent flyer program and the airlines will start a code-share flight between Tallinn and the Scandinavian capitals. A code-share flight means that the clients of Estonian Air can fly with SAS and vice versa.

Estonian Air held talks with four groups dominating the European scene – One World Alliance, Swissair, KLM-Alitalia and Star Alliance – and settled on Star Alliance’s SAS, finding it the best partner for co-operation.

But the partnership means that Estonian Air’s cooperation with Finland’s Finnair on the Tallinn-Helsinki line has to be discontinued from March 28 next year, when the contract ends. Finnair cooperates with British Airways, which belongs to One World Alliance, a competitor to Star Alliance.

The most notable benefit for the clients of Estonian Air will be the EuroBonus point system. This enables frequent flyers of Estonian Air to collect points on flights with Estonian Air as well as SAS and other EuroBonus partners, including Lufthansa, United Airlines, Thai Airways, Air Canada and Icelandair. From the points collected, a client can choose a premium flight from among all the flights offered by the EuroBonus partners.

As from March 28, Estonian Air and SAS aim to start code-share flights between Tallinn, Stockholm, Copenhagen and Oslo, which means greater flexibility and more flights between Tallinn and the Scandinavian capitals for the customers of both airlines.

The airlines would also coordinate their timetables to support transit traffic through Copenhagen, Oslo and Stockholm to the rest of the world and through Tallinn to the CIS and Baltic countries.

The cooperation agreement does not have any impact on Estonian Air ownership and management. Estonian Air, which belongs to the Estonian state (34 percent), Baltic Cresco Investment Group (17 percent) and a Danish private airline Maersk Air (49 percent), will remain independent and retain its identity as the national carrier of Estonia, says the Estonian Air press release.

SAS was also one of the candidates in the privatization of the Estonian airline company in 1996, but lost the deal to Maersk Air. SAS and Estonian Air were also competitors in the past. Now they can arrange a more reasonable timetable, having flights at different times during the day.

Estonian Air operates with two Fokker 50 and three Boeing 737-500 aircraft to 13 destinations: Helsinki, Stockholm, Oslo, Copenhagen, London, Amsterdam, Hamburg, Frankfurt, Kiev, Moscow, Minsk, Vilnius and Riga.

The company received a 516 million kroon ($37.8 million) turnover last year, which is 152 million kroons more than the year before. The company’s loss for 1997 was 56 million kroons, 30 million kroons less than it lost the previous year. According to Olev Schults from Cresco Investmets, the company had planned to profit in the fourth year after the privatization. In 1997 the company served 281,000 passengers and had 380 employees.


Petrol prices rise in Estonia

The Baltic Times, TALLINN
Dec 10, 1998
By Kairi Kurm

Taxes constitute more than half of gasoline prices, but Estonia decided to add another excise tax of 0.5 kroons per liter Dec. 1.  Drivers felt the change the same day they drove into gas stations to fill their empty tanks. They paid 6.50 kroons ($0.48) per liter for 95E gas, while a day before they would have paid only 6 kroons.

In 1997, the government decided to increase the additional excise tax on gas step by step until the year 2001.

“By the end of the planned increase in excise tax, its level will be comparable to those of Western countries,” said Ain Ulmre from the Ministry of Finance.

Most gas stations said drivers filled their tanks before Dec. 1, and there were fewer clients the week after the price increase.

“The sales of fuel decreased for a short time due to the impact of increasing prices. People bought more fuel before that. But they will get used to higher prices in a short time,” said Indrek Randver, retail sale manager at Alexela Oil.

He also noted gas stations sometimes have to lower their prices despite high excise taxes.

“As of tomorrow, the price of 95E gas per liter will be 10 cents cheaper due to decreasing prices on world markets. We react to these changes quite fast, although sometimes not on the same day,” said Randver.

The average price on the world market is still higher than the price in Estonia. According to the business magazine “Tulu,” only the average gas prices of Romania, Russia and Lithuania were below the Estonian ones.

In February, the price of 95E per liter cost 6.50 kroons in Estonia, while the price was almost 16 kroons in the Netherlands, Sweden, Finland and the UK. In Norway, prices even exceeded the16 kroon level. In Lithuania, it costs 10 cents less and in Latvia 1.50 kroons more than in Estonia.

According to the daily business newspaper, Aripaev, the price of 95 E fuel is comprised of 1 kroon VAT, 3 kroons excise tax, 0.82 kroons retailer’s revenue and 0.48 kroons wholesaler’s revenue, while 1.20 kroons is the actual price per liter.


Danes storm security market

The Baltic Times, TALLINN
Dec 10, 1998
By Kairi Kurm

The Danish-owned security company Falck Group started its invasion of the Baltic states by acquiring a 65 percent stake in the Estonian Security Service, the biggest security company in the Baltics, and plans to increase its presence here by eventually moving into Latvia and Lithuania.

The price of the deal was not disclosed, but both parties seemed to be satisfied.

“We are proud of being able to open up activities in the Baltics and having this co-operation with ESS. It took us 90 years in Denmark to win a market share, but six years for ESS in Estonia. We would like to complete that development in Latvia and Lithuania,” said Lars Norby Johansen, president and chief executive officer at Falck Group.

Falck Group has widely expanded during the last 10 years, and now owns companies in nine Baltic Sea area countries.

“It is not a take-over. There would be a majority of Estonians on the board. The success you have built is fantastic,” said Johansen.

Urmas Sooruma, head of the council of ESS, previously owned 35 percent of the company’s 11 million kroon ($807,000) share capital, while Hansapank and Uhispank were the other big shareholders.

“The present management has a very strong know-how of the local market. That is where synergy arises. We can together make a very strong foothold in Latvia and Lithuania,” said Johansen.

In Latvia and Lithuania, ESS has operations in close to 10 cities. ESS also owns an insurance company in Lithuania and Estonia. As ESS does not have a substantial market share in Latvia and Lithuania, Falck Group has decided to find partners in those two countries in the near future. The management of Falck Group believes that the service and management philosophy pursued in Estonia can be transferred to these two countries.

According to a Falck press release, the Latvian and Lithuanian markets are not quite as developed as the Estonian market, but may grow by approximately 25 percent in the next few years. The Estonian security market is expected to grow by 10 percent to 15 percent annually over the next three to five years. The largest operators in the Latvian and Lithuanian security markets, which are partially government-owned, are expected to be privatized.

In addition, Falck group has an option to buy the remaining 35 percent of the shares in ESS. ESS is also planning to sell some of its subsidiaries, which services differ from the ones that Falck group is offering.

ESS turnover in 1997 was 177 million kroons and the company earned 8.5 million kroons in profit. This year, the company predicts a 290 million kroon turnover due to the takeover of the Estonian security company EVK Group this summer. Falck’s turnover is close to 11 billion kroons and together with ESS it has about 20,000 employees including ESS’s 3,000 employees. ESS holds 40 percent of the Estonian security market and 66 percent of the guard services.

In connection with the acquisition, ESS will also be removed from the Tallinn Stock Exchange as the company no longer adheres to the exchange requirements and the new strategic investor satisfies the company’s needs for capital. The amount of freely traded shares is below the required 25 percent and there are less than the required 100 shareholders.

In order to save the rights of the small shareholders, who might not receive the same information about the company, their shares will be bought back by other big investors.

” The stock exchange is necessary for increasing capital. If one is operating through an international concern, it is better to increase capital through a parent company,” said Rain Tamm, manager of the investment banking division at Hansapank.

“For a developing company it is characteristic that additional capital is frequently needed because it is not possible to develop endlessly with one’s own resources,” said Sooruma, the man who founded the first private security company in Estonia seven years ago. “We have won the market share thanks to the hard work of our employees. We could then manage with the capital that we had, but now we need a strategic investor.”

This is already the second merger of an Estonian security company with a foreign investor.

Two months ago, Europe’s largest security company, Securitas, which also had a subsidiary in Estonia, acquired the third biggest security company, Estonian Security Center. Akropol holds the second position on the Estonian security market. Each of these companies control about 10 percent of the local market.