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Cablegate: Lithuanian Airline Files Suit Against Airbaltic

DE RUEHRA #0671/01 3081533
P 031533Z NOV 08



E.O. 12958: N/A
SUBJECT: Lithuanian airline files suit against AirBaltic

1. This is a joint cable from Embassies Riga and Vilnius.

2. Summary: Private Lithuanian airline, FlyLAL, and Latvia's
national airline, AirBaltic, are involved in an increasingly nasty
dispute centered on AirBaltic's pricing of flights out of Vilnius.
FlyLAL alleges that AirBaltic is using the deep discounts it
receives for gate fees in Riga to subsidize fares from Vilnius at
less than cost. FlyLAL succeeded in getting a Lithuanian court to
order the seizure of some AirBaltic assets in Lithuania in a
proceeding that did not meet minimum standards of transparency.
Riga Airport subsequently suspended FlyLAL's flights from Riga to
Vilnius for purported unpaid debts. The case even has the two
governments sniping at each other and is an example of how competing
economic interests are more important today than old standards of
Baltic unity. End summary.

3. Tadas Vizgirda, Executive Vice President and General Manager of
AirBaltic Lithuania, confirmed to Embassy Vilnius that FlyLAL has
brought a legal claim against Air Baltic and Riga Airport in a
district court in Vilnius. FlyLAL is claiming that the discounts
AirBaltic is receiving at Riga Airport violate EU competition laws.
FlyLAL further argues that these discounts have given AirBaltic an
unfair competitive advantage enabling it to subsidize its flights in
Vilnius, which FlyLal believes are priced below market level. As a
result, FlyLAL asserts it has suffered USD 80 million in losses. To
secure compensation from AirBaltic and Riga Airport, FlyLAL made a
request for the court to freeze some of Air Baltic's assets. The
District Court of Vilnius granted this request.

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4. Vizgirda relayed AirBaltic's position that the case is not
legally sound due to jurisdiction issues and the fact that AirBaltic
was never informed of the proceeding. CEO and President of
AirBaltic, Berthold Flick, publically noted that discounts on fees
at Riga Airport are awarded based on flight and passenger volume in
accordance with regulations issued by the Latvian Cabinet of
Ministers, and added that other airlines, including KLM/Air France
and Ryanair also receive these discounts. He added that AirBaltic
has begun the process to appeal the judgment of the Lithuanian

5. As the case has proceeded, the two governments have begun taking
shots at each other. Latvian transport minister Slesers, who has
the Riga airport and AirBaltic at the heart of his vision for
development of Latvia and its capital, accused the Lithuanians of
inconsiderate behavior, noting that Latvia has never sued a
Lithuanian enterprise operating in Latvia, and went on to say that
FlyLAL would not benefit from the legal action as it is near
bankruptcy and will be out of business soon. The Lithuanian
transport minister responded in a press release that "Slesers'
statement regarding FlyLAL is unfounded and forms an unfavorable
opinion about the Lithuanian company. Such comments by a
neighboring country's government officials about operations of
Lithuanian companies and their financial situation are unacceptable
to Lithuania."

6. This is not the first time that the question of landing fees at
Riga airport has come up. In November 2006, Austrian Airlines,
Czech Airlines, Finnair, British Airways, Lufthansa and KLM
submitted a petition to the Latvian Competition Board claiming that
the discount system in place at Riga Airport violates EU competition
regulations. The Board ruled in favor of the airlines and required
that the discounts be eliminated. The Latvian Transportation
Ministry, however, filed an appeal with the County Administrative
Court and the court set a review date of September 23, 2008.
Following a request for change of court jurisdiction by one of the
parties, the County Administrative Court decided to transfer the
case to the District Administrative Court, which plans to review the
case by October 1, 2009.

7. For its part, Riga Airport on the morning of October 26 suspended
flights of FlyLAL to Vilnius, claiming that the company had not paid
its bills and, according to press reports, seized the last FlyLAL
plane in its terminal. An airport spokesperson said that FlyLAL has
not settled debts at the airport since the middle of summer and has
not shown any desire to make an agreement on settling the debts. In
response, Baltic News Service said that Vytautas Kaikaris, the
Director General of FlyLAL, told them that FlyLAL has no past-due
debts with Riga Airport, and that he believes that the decision of
the airport to suspend FlyLAL's flights to Vilnius is in revenge for
FlyLAL's claim against AirBaltic and Riga Airport. The Press
reported that on October 27th FlyLAL paid 40,000 Euros to secure the
release of the plane impounded the previous day..

8. Comment: The case brought by FlyLAL in Lithuanian court seems
more a show than anything else. The idea that a hearing could be
held and property ordered seized without the defendant even notified
of the proceeding - and that AirBaltic assets could be seized to
punish Riga Airport - does not meet any basic standard of
jurisprudence. But the case itself and the reaction between the
governments, much like the back and forth over the proposed
electricity link from Sweden, is evidence of the limits of the

RIGA 00000671 002 OF 002

Baltic unity that we all too often assume continues to motivate
relations between regional governments.


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