AirBaltic CEO Discusses IPO, PW1500G Engine Problems

VILNIUS, Lithuania—AirBaltic expects to have a second consecutive record revenue year in 2024 and plans to double its all-Airbus A220 fleet over the next five years despite ongoing durability issues with the aircraft’s Pratt & Whitney PW1500G engines, the carrier’s top executive says.

To fuel its growth, airBaltic is considering an initial public offering (IPO), the airline’s president and CEO Martin Gauss says, speaking at Aviation Week Network’s MRO BEER conference.

The carrier, whose primary shareholder (97.97%) is the Latvian state, could go to market as early as the end of 2024, or in 2025 or 2026, depending on market conditions. The airline also “issued a bond where we raised some capital” as an alternative, Gauss says, “but the target is trying at end the of this year. We are in a full preparation for a potential IPO.”

Gauss joined airBaltic in late 2011 to restructure the carrier. At the time, its fleet consisted of a mix of Fokker 50s, Boeing 737 Classics, 757s and 40 newly ordered Bombardier Q400s. Operating that mix was “super expensive,” he says. Its options for replacing “the workhorse 737s” in 2012 were the A319neo, the 737 MAX 7 and the Bombardier CS300, which Airbus later purchased and renamed the A220.

“These aircraft were paper only ... the only 150-seater that has the right economics is the one we chose,” Gauss says.

AirBaltic’s “strategy is clear: we focus on a single type to get the maximum expertise” on operations and maintenance, which it performs in-house, Gauss says.

“We’ve built ourselves around that aircraft and that continues to be very successful,” he says. With its 47-aircraft fleet operating today, each time airBaltic adds an aircraft, “we just increase our EBITDA because we understand the cost and we understand all the complexity of the airline. So, what we need to do now is get as fast as possible a larger number of aircraft to optimize the numbers,” Gauss says.

The carrier’s first eight A220s are finances leases and the rest, usually done in “batches of four to six aircraft,” are done through sale-leasebacks, Gauss says. Its debt has a “B minus rating, which isn’t good enough to put more aircraft on the balance sheet today,” Gauss says.

However, the IPO would raise new equity that could be used to obtain more aircraft.

Although the A220’s “trip cost advantage is unbeaten in that (150-seat) category,” the airline’s operations have been limited by the Pratt & Whitney geared turbofan engine problems.

Gauss says Pratt forecasts airBaltic will be missing 36 engines during its winter flying season because “parts are not available and slots in the shops are available.” This compares to 26 engines during last winter. “How do you run an airline if you are missing 30% of your fleet’s engines,” he says.

“We have a very close contact with Pratt and unfortunately they also do not see this going away in the next two years,” Gauss says. So far, airBaltic has been able to keep the PW1500G engines on-wing during its busy summer season, so the downtime is limited to the slower winter months.

The other bright side is that time on-wing is improving. Gauss says the PW1500G engines started off only staying on-wing for 150 hr. due to the combustion/heat exchanger problem, which has been corrected, but one is at almost 5,000 hr. Its average, however, is 2,200 hr. on-wing due to lingering problems, including contaminated powdered metal. As comparison, he points to the CFM56 engines powering Boeing 737 Classics that average 23,000 hr. on-wing.

Given the 2,200 hr. on-wing at six years of operation, “that means 10% of what an established engine was,” he says. “It’s insane.”

The engine generates a 30% reduction in fuel emissions, but “unfortunately all these savings are offset by higher maintenance costs,” which means “you have a net gain of zero at the end,” Gauss says.