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Finnair in Talks to Create Nordic Airline Pact as Loss Jumps

Finnair Oyj said it’s in talks to create a joint venture that would expand its presence across the Nordic region and help stem losses from short-haul operations.

Finland’s biggest airline has identified potential partners with which to build bases, it said today after a fivefold jump in its fourth-quarter loss to 32.6 million euros ($43 million).

“We want a stronger presence in Scandinavia and the Baltics,” Chief Executive Officer Mika Vehvilainen said in a phone interview. “What we would bring into the partnership is our brand, marketing presence and distribution. The other party would have to bring in cost-effective operational capability.”

Finnair, which has established Helsinki as a hub for flights to China, Japan and Korea, hasn’t posted an annual profit since 2007 as competition with Stockholm-based SAS Group and discount carriers including Norwegian Air Shuttle AS crimps European margins. The new venture probably won’t include network airlines and shouldn’t require any equity tie-up, the CEO said.

State-controlled Finnair fell as much as 4.6 percent and traded 3.4 percent lower at 2.54 euros as of 12:03 p.m. in Helsinki, paring gains this year to 10 percent and valuing the company at 326 million euros. The stock fell 54 percent in 2011.

Direct Rival

Vantaa-based Finnair isn’t talking with Norwegian Air, SAS or Flybe Group Plc, Europe’s biggest regional airline, with which it has an existing venture in Finland, Vehvilainen said, adding that SAS’s costs are too high, Norwegian is a direct competitor and U.K.-based Flybe’s planes are too small.

Among other candidates identified by Jaakko Tyrvainen, an analyst at FIM Bank in Helsinki, German discount carrier Air Berlin Plc said it couldn’t immediately comment and AS Estonian Air isn’t in any talks, according to its CEO, Tero Taskila.

While closer links with Finnair would in some ways be a “match made in heaven,” they’re not on the agenda as Estonian focuses on the Baltic, Taskila said by telephone.

Finnair aims to seal a deal by the middle of this year and commence operations in the first half of 2013, said Vehvilainen, who took over as CEO two years ago. Feeder costs could be cut by “tens of percentage points,” he said.

‘Considerable Loss’

Should Finnair succeed, the situation would become “very uncomfortable” for SAS, Tyrvainen said. The Nordic region’s biggest airline yesterday posted a wider-than-expected 2.08 billion kronor ($310 million) quarterly loss as the collapse of its former Spanair brand led to a writedown on remaining ties.

Finnair’s quarterly loss, which widened from 5.7 million euros a year earlier, exceeded the 27.9 million-euro average estimate of analysts surveyed by Bloomberg. Sales rose 12 percent to 577 million euros, according to the statement.

Vehvilainen said he anticipates a “considerable loss” in the first half and that it’s “impossible to tell” how the full year will pan out. While a 140 million-euro cost-cutting plan, which includes a four-plane reduction in the narrow-body fleet this year, is going “well,” more job cuts are possible, he said.

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