OREANDA-NEWS. June 10, 2010. The Estonian government will raise the state's holding in the national carrier Estonian Air to 90 percent by increasing equity, the Ministry of Economy and Communications said.

The stake of the Scandinavian aviation group SAS will decline to 10 percent.

The capital injection will cost the state 280 million kroons (EUR 17.9 mln).

It is planned that Estonian Air will cancel all the existing stock and the government and SAS will between them provide new capital in the amount of 311 million kroons. SAS will convert into equity a part of its short-term loan to Estonian Air. The state's 280 million kroon contribution will come from the state budget. As to the remaining part of the SAS loan, the Scandinavian carrier and the government have agreed to restructure it into a long-term loan.

Minister of Economy and Communications Juhan Parts said the new capital should suffice for the development of Estonian Air over the next three years. SAS has the option to sell its 10 percent holding after four years and Estonia will be obliged to acquire it.

The increase of capital will allow Estonian Air to wrap up the purchase of new aircraft from the Canadian manufacturer Bombardier. The original plan was for the airline to buy three planes and it has so far made an advance payment of 12 million dollars for them. The number of planes Estonian Air will in reality buy depends on actual need, the minister said. In his words, the scope of the capital increase largely stemmed from the need to pay for the aircraft.

The government is not a strategic investor in Estonian Air and could sell its holding, Parts said. In his words, interest in the stake is great, but the government will address the matter after the planned change in the ownership structure has been finalized.

Estonian Air has to become a profitable enterprise within three years at the latest, Parts said.

The state of Estonia currently owns 34 percent, SAS 49 percent and the investment bank Cresco 17 percent of Estonian Air.