The national airline informed the creditor “EA partners” that it could not settle the debt of 56.5 million dollars, which will be collected next month, but the creditor refused to reduce the claim.
In September, “Air Serbia” will receive a loan of 56.5 million dollars raised from the “EA partners” fund. Another loan of 63 million dollars should be paid to the same creditor in June next year. Servicing these obligations is a stumbling block to our airline now that air traffic is suffering heavy losses due to the corona virus pandemic. That is why “Air Serbia”, whose co-owners are the Government of Serbia with 51 percent and “Etihad” from the United Arab Emirates with 49 percent, requested that its creditor reduce 82 percent of the total debt of about 120 million dollars. However, such a request was denied.
This is published on the website of the London Stock Exchange. From the correspondence with the creditor, it can be seen that “Air Serbia” explains the potential impossibility of settling obligations, ie repaying loans taken out in 2015 and 2016, with the current Covid crisis, the closure of the airport on March 19 and the impossibility of flying. Based on its market projections, it proposes to change the terms of the loan.
In a letter to the lender from July this year, “Air Serbia” requests that the loan be reduced by 82% on the day of payment so that it can continue to operate, generate and accumulate the necessary cash to repay the loans after restarting its business activities, to perform due to a coronavirus pandemic.
The Board of Directors of “EA Partners” concluded that the proposal of the company “Air Serbia” for debt repayment is unacceptable and expects that “Air Serbia” will pay all the amounts according to the loan agreement on the due date, and in accordance with the agreed and accepted conditions.
We asked “Air Serbia”, the Government of Serbia, the Ministry of Finance, the Ministry of Construction, Transport and Infrastructure, who will pay the 56.5 million dollars that will be due in the middle of next month, but no one answered.
That this could be a burden on the budget was also pointed out by the Fiscal Council in its latest report, which deals with the effects of the health crisis on fiscal and economic trends for this year and the recommendations for next year.
The Fiscal Council states that the expenditure side of the budget could remain in line with the plan of the rebalance until the end of the year, if there are no unforeseen circumstances, but also warns that it is unknown whether and in what way state companies will receive support from public funds.
– In the first place, we single out “Air Serbia” because that company informed the creditors in May that it would not be able to repay the principal of the debt that matures in September (around 40 million euros). This cost could potentially, at the expense of the pandemic (of about 60 million euros), together with the estimated loss suffered by this company, fall on the state budget. From the appearance of officials, it can be assumed that there is a determination that the state will financially strengthen this company during 2020, although it is still not defined in what amount and in what way: whether by increasing the share of ownership (which would not formally represent expenditure and increase deficit) or through direct subsidies (which would directly affect the growth of government expenditures) – states the Fiscal Council in its report.
Milan Kovacevic, an investment consultant, points to the fact that in this case one of the partners credited the joint venture because he believes that Etihad, co-owner of Air Serbia, and EA Partners, which lent it to Air Serbia 120 million dollars, related parties.
– If that is the case, then it was not normal to write letters to the creditor, but the partners of the Government of Serbia and “Etihad” should have sat down and agreed because “Air Serbia” as well as other airlines suffered losses and is not able to to repay the loan. The biggest problem is that we do not have enough information because all contracts regarding “Air Serbia” remained secret. In this situation, Air Serbia will go bankrupt or do something reasonable. It doesn’t all come down to just one loan. Air Serbia will start flying to Montenegro tomorrow and must buy fuel. If the creditor blocks the account, and what would not block if they do not agree on anything, “Air Serbia” goes bankrupt – our interlocutor explains and emphasizes that the company does not go bankrupt when it makes a loss, but when it cannot operate, which means buying fuel, payment of wages and the like.
Kovacevic points out that according to our regulations, bankruptcy can only be avoided by reorganization, ie UPPR. It would be time for both partners to work on it now, he believes.
– The stupidest thing would be for the state to pump money into “Air Serbia” again in order to pay money to the “Etihad” fund. That should not happen. America has given loans to such companies to overcome the crisis, similar to our UPPR, but it is even more efficient. If the companies promise to get out, the state gives a loan for a pledge on their capital – says Kovacevic.
According to our interlocutor, the government, as the majority owner, should make an analysis as soon as possible whether “Air Serbia” can survive and in what way. But to do it in a way that does not fall on taxpayers, because so far it has often been the case that the state helps the national airline through subsidies, Kovacevic adds.
– If other countries will save their airlines, we will have to. All possible good ideas should be considered. We praised “Etihad” when it recapitalized our airline, what we would need to think about and ask if someone could recapitalize “Air Serbia” now – says Kovacevic, Politika reports.
