The Croatian government on Thursday approved a payment of €13.5 million (100 million kuna) from its budget reserves to the national flag carrier, Croatia Airlines, as part of an effort to pave the way for the airline's recapitalisation by "stabilising its business."

This is the first installment of a grant in the amount of HRK 250 million that the government okayed last week to stablise the airline’s business ahead of the recapitalisation procedure. The grant is to be paid in two installments, the first amounting to HRK 100 million and paid in 2019 while the remainder will be paid in 2020.

Prime Minister Andrej Plenkovic said that he expects the company to consolidate so that it can prepare for changes, “keeping account of new partnerships that are essential.”

Based on a forecast of money flows in the next 24 months, which served as the basis for the government’s decision last week, Croatia Airlines established that its finances would be insufficient for certain repairs and overhauls estimated at HRK 71 million, for due debts to domestic suppliers in the amount of HRK 68 million, for other essential investments over the next 12 months in the amount of HRK 60 million, and to settle loan repayments of HRK 26.3 million.

The government added that it is also necessary to secure funds for extraordinary repairs to aircraft engines and that on average such repairs happen once a year, which costs an additional HRK 4 million per engine.

The government believes that if the airline is not able to conduct its regular business due to the lack of capital, it would have inevitable repercussions for Croatia’s economy far greater than the amount of fresh capital to be injected and the amount of future recapitalisation.

That would in particular disrupt the domestic airline market which largely depends on the national flag carrier as well as connections between Croatian cities and key European destinations, which is of national interest and of key importance during Croatia’s chairmanship of the European Union in the first half of 2020, the government said.

(€1 = 7.39 kuna)