State to recapitalise Croatia Airlines in debt-to-equity swap

The Croatian government will recapitalise the national carrier by converting its outstanding state loans into equity, as the airline’s losses and debt continue to mount. On December 29, Croatia Airlines’ management is expected to approve a 43 million euro increase in share capital through a debt-to-equity conversion. The move will see a 33.2-million-euro state loan, along with 9.8 million euros from another government loan, transformed into equity by issuing new shares. The newly created shares will be taken up by the Republic of Croatia.

While the government is not injecting fresh cash into the airline, it is strengthening the company’s balance sheet by converting existing state loans into share capital, increasing equity and reducing liabilities. This is a standard form of recapitalisation often used for loss-making or financially strained state-owned carriers. The total value of outstanding loans from the state owed by the airline currently exceeds 78 million euros. Since 2019, the government has provided support to the airline through a mix of direct grants, capital injections and shareholder loans.

In 2019, Croatia Airlines received a 33.2-million-euro shareholder loan from the Croatian government intended to stabilise the company ahead of a planned privatisation process, which was later abandoned due to complications caused by the coronavirus pandemic. The loan was originally due to be repaid several years ago, but the airline secured multiple deferrals. It will now be converted into equity. The Croatian government had previously pledged to closely monitor spending at the national carrier under the terms of the 2019 state loan agreement, which was coordinated with the European Commission. However, the state auditor later found that this requirement was never properly enforced. Under the agreement, Croatia Airlines was supposed to submit detailed monthly reports on the use of the funds by the fifteenth of each month, but this did not happen. According to the auditor, the airline submitted only two such reports.

Croatia Airlines is on track to post its weakest financial result in four years, with its ongoing fleet transition placing significant pressure on costs and expenses. The carrier has recorded annual losses every year since 2018, with the sole exception of 2022, when the sale of five Airbus A320 aircraft temporarily pushed the airline into the black.