An Extreme Solution to Rescue State-Run Air Moldova. Why Banks Won’t Lend

Miercuri, 17.01.2018 11:16   1132

This is translation from Romanian. The original story is HERE.

Air Moldova, a creepy state-run flights operator, has been awarded 75 million lei in aid from the government, via the Chisinau International Airport, another ailing enterprise controlled by the state. The aid is critical for Air Moldova, which could ground its planes without this money. 

The aid package was approved recently by the Competition Council. The purpose of the spending: “Rescue Air Moldova”, the decision reads.

Air Moldova out of cash; not even for maintenance of its fleet

Company reports show that Air Moldova has run out of cash and it not able even to cover the costs of aircraft maintenance, which in consequence results with flight delays and unplanned expenses. It did ask for loans from commercial banks. The Competition Council in its decision revealed that three large banks - Victoriabank, Moldova-Agroindbank, and Mobiasbancă - refused to help “due to the ineligibility of Air Moldova for lending under the conditions established by the central bank” - lack of resources for reimbursement. 

In a request for aid, Air Moldova management argued that as a state-owned enterprise it was entitled to seek credits from the internal market exclusively, which are more expensive than international lending programs. In the end, the company asked a commission-free loan of 75 million lei from the Chisinau International Airport, which is Air Moldova’s home base, for its working capital. 

Over 100 million in losses in eight months

Air Moldova financial reports show that in just eight months of 2017 the company lost more than half of its statutory capital. The net losses amounted to 111.5 million lei and the size of the statutory capital was in minus 2.9 million lei. 

The Competition Council also found that the overall debt burden of Moldova’s largest air services operator had been on a permanent increase during the period 2013 - August 2017: from 604.6 million up to 1.12 billion lei.


Its global indebtedness coefficient passed over the acceptable 0.66 points and at the end of August 2017 it was 1.00. The general solvency rate, too, was under the permitted level: 99%.

There has been no explanation from Air Moldova management as to how did the largest Moldovan air carrier waste its finances instead of generate revenues. What it did announce was the plan to include the loan and the reimbursement costs in the business plan (flight tickets). The deal was authorized by the Public Property Agency - which is the official founder of the Chisinau International Airport - at the request of the Ministry of Economy and Infrastructure. 

What if Air Moldova remains on the ground?

In defense for Air Moldova’s request for aid, the Competition Council said the existence of the company was important for its obligations to carry some 400,000 passengers during the cold season - and especially the winter holidays - from and towards various destinations in the European Union and the Commonwealth of Independent States. 

"The market share of Air Moldova demonstrates a heavy dependence of the air transportation services in Moldova on this enterprise. The next [major carrier], WizzAir has a market share of 10% but it operates mainly routes to peripheral airports and can’t substitute adequately [Air Moldova]," said the authority whose job is to oversee that competition is fair. It further argued that no existing competitors would be able to replace Air Moldova, should the latter shut down, and the domestic air transportation services could be disturbed. 

Closure or restructuring? 

Air Moldova’s future remains uncertain. The Ministry of Economy and Infrastructure, the Public Property Agency, the Civilian Aeronautics Authority, and the Chisinau International Airport work together to prepare a proposal for the Competition Council within six month. They have to decide whether Air Moldova is worth keeping – and restructure the company – or needs to be shut down. 

Privatization of Air Moldova had been one of solutions until December 2017, when former economy minister Octavian Calmâc announced that it won’t be in the sales list until 2019.

Economist Eugen Ghilețchii says in an analytical paper about state-run enterprises in Moldova that the country has been struggling with Soviet-era economic “habits” ever since it gained independence from the communist bloc. There’s a large size of economy under the government’s direct management and state enterprises have become genuine money wasters and sources of corruption, he stated. The expert of Expert-Grup think tank suggests that the state-controlled enterprises complied with the standards and rules that government the joint-stock companies. “In Moldova at this moment, joint stock companies are obliged to with in compliance with a corporate governance code, while state enterprises don’t have this responsibility,” Mr. Ghilețchii says in his study “Making State Enterprises Responsible. About the Black Holes of Moldovan Economy.”

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