Eximbank Romania will grant the low-cost airline Blue Air a loan of 300 million RON for a period of 6 years, according to a draft normative act posted for public debate on the website of the Ministry of Public Finance, MFP.
According to the substantiation note, the draft normative act proposes for approval the model of the guarantee convention and the model of the guarantee letter containing the general clauses for the state guarantee of the loan, as well as the financial terms of the state-guaranteed loan to be granted to Blue Air by the Export-Import Bank of Romania EximBank, in the name and on behalf of the Romanian state.
To assume the 100% loan guarantee risk, including interest and commissions, Blue Air Aviation will pay the Ministry of Public Finance, as Guarantor, a risk fund commission of 2% per year applied to the guaranteed loan balance, in consecutive semi-annual installments throughout the 6-year loan period.
The guarantee convention will be concluded between the Romanian state, through the Ministry of Public Finance, as Loan Guarantor, Blue Air Aviation, as Guaranteed, and the Ministry of Transport and Infrastructure with Blue Air Aviation, as administrator of the state aid measure granted to the company.
The guarantee convention provides for the obligations to be fulfilled by Blue Air Aviation, including its commitments and those of the Ministry of Transport, Infrastructure, and Communications arising from Government Emergency Ordinance no. 139/2020, during the term of the state-guaranteed loan.
“According to the economic-financial analysis conducted by Eximbank SA, in accordance with the provisions of art. 4 para. (1) of Government Emergency Ordinance no. 139/2020, with subsequent completions and transmitted to the Ministry of Public Finance through address 100.202/01.10.2020, the following results: 1. The economic-financial situation of Blue Air Aviation SA a) There is significant uncertainty regarding the company’s ability to continue its activity and a high risk of not honoring its financial obligations, the company currently meeting the legal requirements to be classified as an undertaking in difficulty, given that more than half of the subscribed social capital has disappeared due to accumulated losses, and the company is unable to continue its activity if it does not benefit from financial aid. In accordance with the provisions of the Companies Law no. 31/1990, when it is found that the company’s net assets, determined as the difference between total assets and total liabilities, represent less than half of the value of the social capital, the company’s administrators are obliged to immediately convene the Extraordinary General Meeting of Shareholders to decide if the company should be dissolved. If the General Meeting does not decide on dissolution, then the company is obliged, at the latest by the end of the subsequent financial year, to proceed with reducing the social capital by an amount at least equal to the losses that cannot be covered from reserves, if in this interval the net assets have not been reconstituted to a level at least equal to half of the social capital,” the document mentions.
At the same time, the substantiation note specifies that the company is decapitalized, recording negative equity at the end of June 2020. The company’s debt level is extremely high and shows an upward trend.
Liquidity is sub-unitary throughout the analyzed period, and negative cash flows generated by the impact of the epidemic have affected the company’s ability to ensure the liquidity necessary to pay salaries, debts to suppliers, and those to the state budget.
“Eximbank’s conclusion is that the company’s value at this moment is negative,” the document states.
According to the document, the assessment of repayment capacity started from the financial projections made by Blue Air Aviation under the hypothesis of the successful implementation of the concordat plan, which in turn has as main premises obtaining state aid (contracting a bank loan of 63 million EUR with a 100% state guarantee) and achieving an additional capital infusion of at least 50 million EUR (of which 20 million EUR in 2021 and 30 million EUR in 2022). “Although the company has taken into account a gradual recovery of flight levels over the next period, there is a significant level of uncertainty regarding the evolution of the pandemic and the level of infections, both in Romania and in Blue Air Aviation’s main European destinations; in the event of a negative evolution of the pandemic in this region, the level of activity (flights) can be significantly affected, thus leading to a decrease in the company’s debt repayment capacity; in this context, a simulation was performed by reducing the company’s direct receipts and expenses by 15%, a situation in which a significantly affected repayment capacity results, by recording negative cash flows throughout the analyzed period. The company’s cash flow is considered optimistic given the forecasts of future receipts, provided that for 2021 these are estimated at 80% of the 2019 achievements. For comparison, the International Air Transport Association (IATA) estimates that revenue passenger kilometers will return to 2019 values only in 2022, and for international flights only in 2024,” the document further states.
Frequently Asked Questions
What is the value of the loan Blue Air is receiving?Blue Air is set to receive a 300 million RON loan from Eximbank Romania for a 6-year term, fully guaranteed by the Romanian state.
What are the main financial risks identified for the company?Eximbank’s analysis indicates that Blue Air has negative equity, an extremely high debt level, and a market value currently considered negative.
What additional conditions are necessary for Blue Air’s recovery?In addition to the state loan, the recovery plan requires an additional capital infusion of at least 50 million EUR by the year 2022.