AIRLINES Nordica
NORDICA IS
AIMING HIGH
© David Dolinay
How will Nordica, Estonia’s new flag
carrier, succeed where Estonian Air
failed? Partnerships are key as the
airline rapidly finds its niche
WORDS: MARTIN RIVERS
hen Estonian Air was
W ordered by the European
Commission to pay
back more than €85 million of
illegal state aid in November
2015, its government owner
was immediately resigned
to shutting down the
underperforming flag carrier.
Had the commission
ruled differently, Tallink,
Estonia’s main ferry operator,
was waiting in the wings as
an investor. But there was
no prospect of privatising the
airline once the EU had saddled
it with such huge debts.
Fortunately for Estonian
travellers, the government
anticipated the ruling and
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p32-34 airline Nordica.indd 32
had already set up a new flag carrier by
the time of the commission’s decision.
This contingency planning allowed the
new company, Nordic Aviation Group, to
launch operations on the very same day
that Estonian Air was grounded – initially
as a virtual airline under contract with
Slovenia’s Adria Airways.
It has taken just two years for the
new flag carrier, operating as Nordica, to
become an independent company with
its own Air Operator Certificate (AOC),
a fleet of 18 aircraft and a positive
financial outlook.
CEO Jaan Tamm says that one
factor above all else is helping
Nordica thrive where Estonian Air
floundered: its provision of ACMI
(aircraft, crew, maintenance and
insurance) wet lease services to
foreign customers.
While its predecessor targeted scale
at home by building a hub-and-spoke
Jaan Tamm, network in Tallinn, Estonia’s capital,
CEO, Nordica Nordica generates most of its earnings
from contract work overseas.
“Our mission, of course, is to serve the
local Estonian market. This is why we were
launched,” Tamm says.
18/05/2018 09:47

“But we get scale effects in the opposite
way [to Estonian Air] – not by flying
customers to Tallinn, but by going out
ourselves to the customers.”
Shifting the focus to foreign bases
means that management are tacitly – and
wisely – acknowledging the limitations
of their home market. Estonia has the
smallest population of all the Baltic and
Scandinavian countries: just 1.3 million
people. Saddled with this demographic
handicap, Tallinn did well to attract nearly
3 million passengers to its airport last year.
But the gateway is a minnow compared to
regional hubs such as Stockholm Arlanda
Airport with 27 million passengers, Helsinki
Airport at 19 million and even Riga
International Airport on 6 million.
Nordica’s overseas strategy is thus
doubly appealing: as well as boosting
operational efficiency – the lifeblood of
any small airline – it provides Estonian
travellers with one-stop connections to
many more markets than could be served
direct from the capital.
“We secure connectivity for different
types of destinations,” Tamm says. “The
natural point-to-point traffic from Tallinn,
and then two or three cities that can
p32-34 airline Nordica.indd 33
Nordica AIRLINES
Facts
function like hubs
for flights to Europe
& stats
and a little bit of
intercontinental.” Group fleet:
10 Bombardier CRJ900s,
LOT partnership 2 CRJ700s, 6 ATR 72-600s
Warsaw is the crucial link in this set-up.
Group passenger numbers
In November 2016, Nordica ended
(2017): 613,000
cooperation with Adria and launched
a deep-rooted strategic partnership Destinations from Tallinn: 21
with LOT Polish Airlines.
Countries from Tallinn: 15
The new arrangement gives
Nordica operational responsibility Wet lease bases: Warsaw, Poland (LOT/
for a sizable chunk of LOT’s regional Nordica brand); Copenhagen & Billund,
network at Warsaw Chopin Airport. Denmark (SAS brand); Groningen,
But the tie-up runs deeper than a the Netherlands (Nordica brand);
simple ACMI contract: Nordica also now Örebro, Sweden
uses LOT’s commercial platform for its own (Nordica brand)
scheduled services from Tallinn. Estonian
passengers click through to a Polish
booking engine when buying tickets, and
their flights carry a Polish flight code to
secure Star Alliance benefits.
LOT has cemented the partnership
by acquiring 49% of Regional Jet, the
technical subsidiary of Nordic Aviation
Group that holds an Estonian AOC and
acts as an operational sub-contractor for
both Nordica and its foreign customers. w
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18/05/2018 09:47
 AIRLINES Nordica
In Denmark, a parallel deal with
Scandinavian Airlines (SAS) sees
Regional Jet operate four ATR 72-600s
from Copenhagen and Billund under a
straightforward white-label agreement.
“They do all the commercial planning,
scheduling, selling tickets,” Tamm says of
the SAS and LOT contracts.
“Our task is just to offer operational
service, and the commercial risk mostly lies
with our partner … It’s much like in the
US [where] three or four big brands are
using other service providers for their small
regional operations.”
Eager to offer a “more full service”
for non-airline partners, Regional Jet
has also struck wet-lease deals with the
local administrations of Groningen, in the
Netherlands, and Örebro, Sweden. These
contracts include additional commercial
services such as revenue management and
route-planning guidance.
In Groningen, Nordica provides
year-round services to Copenhagen and
Munich, plus summer flights to Nice. In
Örebro, a single route to Copenhagen is
flown in partnership with bmi regional.
Focusing on ACMI contracts in this way
has put Nordica on solid financial footing,
with management projecting “around
a seven-digit” profit for their second
full year of operations. That, in turn,
safeguards the group’s primary function
as a flag carrier guaranteeing connections
to and from Estonia. The national airline
now serves 21 European destinations from
Tallinn, following this summer’s addition of
Copenhagen, Constanta in Romania and
Ohrid in Macedonia.
Fleet expansion
Having more than doubled the size of
Regional Jet’s fleet last year, Tamm is
aiming for slower growth in 2018. Two new
aircraft are being inducted at the time of
writing, bringing the overall fleet to 10
Bombardier CRJ900s, six ATR 72-600s and
two Bombardier CRJ700s.
Six of the CRJ900s are owned
by Transpordi Varahaldus, the asset
management company that was set up by
Estonia’s government at the same time
as Nordica Aviation Group. Transpordi
Varahaldus leases its aircraft to Regional
Jet on a long-term basis and aims to keep
its portfolio roughly equivalent in size to
the Tallinn-based operation. As such, the
Estonian network accounts for about
one-third of the group’s activities.
Although he describes last year’s
expansion as “maybe too much”,
Tamm is by no means taking
his foot off the pedal.
Management are talking
to “about 10” prospective
ACMI customers and
hope to open two or three
new bases this winter. The
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candidates come from
all over the EU – not just
the Nordic region.
He estimates that Regional Jet could
have 25 to 30 aircraft on its registry within
five years, due primarily to growth of the
ACMI business.
Asked about the state of competition
in his home market, Tamm brushes aside
recent advances by Air Baltic. The Latvian
airline launched flights to London in
March and will add Stockholm and Oslo
this winter, bringing its Tallinn network to
nine routes. Martin Gauss, its CEO, has
repeatedly asserted his company’s aim
of becoming a shared flag carrier for the
Baltic bloc, but Tamm considers that an
unrealistic goal.
“To launch such a project, there
should be some political and economical
cooperation at the government level,”
he notes. “We are good neighbours with
Latvians and Lithuanians but there are not
so many joint ventures.”
Instead of looking south to the Baltics,
Tamm sees greater potential north in
Helsinki, Finland’s capital.
As a member of the oneworld alliance,
Finnair might not seem an obvious choice
of partner for Star-allied Nordica. But the
Finnish flag carrier has been forced to
take full ownership of Norra, its regional
subsidiary, twice in the past four years.
With Finnair’s management insisting that
Norra can only survive as a joint venture,
alternative white-label arrangements could
soon be considered.
“Of course it’s a question for Finnair, but
why not?” Tamm says. “Finnair is a perfect
partner due to the geographical closeness
and also the cultural closeness … Let’s say
we are monitoring the situation.” £
Nordica sees potential
in Helsinki
It was under
the leadership of Estonian
Jan Palmér that
Estonian Air went
Air
bankrupt in
November 2015,
ceasing operations 24 years after it
was founded as the flag carrier of the
newly independent Baltic state.
Despite steering the company to
its demise, Palmér is not widely
blamed for the insolvency. Jaan Tamm,
CEO of new flag carrier Nordica,
believes that decisions taken before
Palmér’s appointment were ultimately
responsible. “It was not at all due to
what Estonian Air did in its last years.
It comes from its history,” Tamm says.
“The first [mistake was the]
investment that the State made when
SAS sold their shareholding [in 2010]
… And then it was the expansion
strategy [launched by Palmér’s
predecessor, Tero Taskila, in 2011].”
Taskila’s strategy of growing
passenger numbers was “principally
correct”, Tamm says, as the company
he inherited was “too small to survive
in the long run”. But the plan was
poorly executed. In an effort to build
a hub network in Tallinn, Estonian Air
widened its catchment area deep into
Finnish territory with feeder routes from
little-known markets like Jyväskylä,
Joensuu and Kajaani. Yet it lacked the
tiny aircraft needed to make such routes
viable, particularly when competing
with larger and stronger Finnair.
By repeatedly pumping money into
the flag carrier – first buying out SAS’s
shareholding; then funding the
expansion strategy; and finally
covering the resultant losses –
Estonia’s government was found to
have violated EU competition laws.
Closing the company was the only
option left once Brussels had
ordered it to pay back the state aid.
Nonetheless, while Tamm
accepts that Estonian Air fell short
of European rules, he questions the
fairness of a system that seems to
disadvantage minor players. “These
regulations were introduced mainly to
regulate competition between the big
airlines … but they hurt mainly the
small airlines,” he argues. “The
Estonian market is very small and
relatively far from the traffic centres
of Europe, and of course it’s difficult
to survive in this very competitive
industry. There could be some
exceptions in the general regulations.”
18/05/2018 09:47