Finnair Oy Business Information, Profile, and History

History of Finnair Oy

Based in Helsinki, Finnair Oy is the national airline of Finland and the sixth-oldest airline in the world. Operating passenger and air freight services throughout Finland and the Baltic region, Finnair also provides regular and seasonal service to Europe, North America, and Asia.

An Early Start

Finnair was established in 1923 as Aero O/Y. The small company was the creation of a small circle of financiers, including Gustav Snellman, Fritiof Ahman, and Bruno Otto Lucander, formerly a Belgian vice-consul. Lucander became involved in aviation in 1918 as the general manager of Finland Spedition, a managerial group that oversaw the Finnish operations of an airline based in Tallin, Estonia, known as Aeronaut.

At that time, the local aviation industry was dominated by German interests, including the aircraft manufacturer Junkers, a company experienced with aircraft designs that were capable of enduring the extreme physical demands of northern European weather. Aero purchased several seaplanes from Junkers, inaugurating airmail service between Helsinki and Tallin with a single-engine, four-passenger model F 13. In exchange for the aircraft and technical advisors, Junkers was given a 50 percent financial interest in Aero. The airline operated out of a seaplane ramp in the Katajanokka district of Helsinki. The company's aircraft were fitted with water floats in the summer and skis in the winter.

Aero began services to Stockholm on June 2, 1924, in conjunction with the airline Swedish ABA. With rail connections from Tallin and Stockholm, travelers were afforded quick passage to Copenhagen, Konigsberg, and Berlin. While the route system remained small, Aero launched a campaign to promote air travel. In 1925 alone, it operated 833 sight-seeing tours.

Also in 1925, Junkers amalgamated its Nord Europa Union and Trans Europa Union air transport subsidiaries into a single company consisting of 16 airlines in nine countries. This new company, Europa Union, was then combined with another German airline interest, Aero Lloyd, to form Deutsche Lufthansa.

Aero remained outside this consortium, but received less support from Junkers, which gave priority to the new German air consortium. Aero turned to the Finnish government for financial assistance to acquire new aircraft, and in 1926 the airline took delivery of its first Junkers G 24, a three-engine, nine-passenger seaplane.

Aero was reluctant to switch to land-based aircraft. In a country with more than 60,000 lakes, the trouble and expense of building runways remained prohibitive as long as Aero continued to operate seaplanes. Additionally, Aero could establish new destinations virtually anywhere there was a lake. With the 1929 death of Lucander, Aero appointed Gunnar Stänhle, who was trained as an engineer, general manager. Aero also ended its financial relationship with Junkers in 1929, when Finnish investors completed a buyout of the German company's interest. In 1930 Aero began to establish a closer relationship with other Scandinavian airlines. The company ran night airmail services in cooperation with Swedish, Danish, and later, Dutch airline companies. Junkers, however, remained the company's aircraft supplier, providing five 14-passenger Ju 52s during the decade.

With the opening of an airport at Turku in 1935 and Stockholm in 1936, pressure mounted to establish a landing strip in Helsinki. Land operations began at Malmi airport later that year, although the airport remained officially closed until May 1938. Aero converted its aircraft to wheel landing gear and operated its last seaplane service on December 15, 1936.

In 1937 Aero took delivery of its first non-Junkers aircraft, two twin-engine DH 89A Dragon Rapides. These planes were operated on domestic routes to northern Finland. The following year, the Tallin route was extended to Berlin, via Riga, Latvia, and Kaunas, Lithuania. In anticipation of increased air traffic for the 1940 Helsinki Olympic Games, Aero ordered two 26-passenger Condor aircraft from Focke-Wulf.

World War II

Due to a complex history of financial and cultural ties with Germany, Finland at this time was politically allied with the fascist Nazi-installed government in Germany. German Chancellor Adolph Hitler made one of his few international trips to Finland to lend support to the Finnish government, which by 1939 had fallen into acrimonious relations with the government of Hitler's archenemy, Josef Stalin.

Tensions between Finland and the Soviet Union mounted. In October 1939 all civilian aviation was placed under Finnish military control. On November 30 hostilities broke out. Finnish troops held off Soviet advances for several months. Aero ceased operation from Helsinki but continued to operate to Stockholm from Vaasa and Turku, despite sporadic air attacks. Of the 3,900 passengers it ferried to Sweden, 1,500 were children who were being evacuated to safety. The Helsinki Olympics were canceled, and Aero never took delivery of the Condors it had ordered.

By the following spring the Soviets had achieved a hard-won victory in Finland. As part of its peace treaty with Stalin, Finland was forced to cede land in its eastern Karelian sector to the Soviet Union. Aero, however, was free to reestablish air services, and in April 1940 resumed flights to Tallin and Stockholm. On the domestic front, the company began a "Lapland Express" to the northern city of Petsamo, in addition to more than a dozen other destinations.

As a result of the Molotov-Ribbentrop pact, in which Germany and the Soviet Union partitioned Poland and occupied Latvia, Lithuania, and Estonia, Finland was afforded an opportunity to reestablish stronger links with Germany. In 1941 Aero acquired two Douglas DC-2s from Lufthansa. The aircraft had been seized from Czechoslovakia when Germany invaded the country two years earlier.

On June 25 of the previous year, the war between Germany and Britain and France broke out. This war, which Finns call the "Continuation War," forced the Finnish government to once again place civilian air resources under government control. Aero ceased its operations from Helsinki and Turku and relocated temporarily to the city of Pori. Even after the United States and the Soviet Union became involved in hostilities during the Continuation War, and in spite of fuel shortages, Aero continued to operate air services to Rovaniemi, Stockholm, and even Berlin.

For Finland, a nominal German ally, the Continuation War ended on September 19, 1944, after Soviet troops had again overrun Helsinki. Malmi airport was placed under allied military control. Aero, however, was allowed to resume operations to Turku, Maarianhamina, and Stockholm from Hyvinkaa.

The Allies banned all commercial aviation from March to August of 1945, when Aero was permitted to resume only domestic schedules. Gunnar Stänhle, however, was forced to resign by order of the Allied Control Commission, which cited the director's sympathies to Nazi Germany during the war. Stänhle was replaced by C. J. Ehrnrooth, who shortly afterward was succeeded by Uolevi Raade. The company was also reorganized during this period, and a board of directors was established.

Post-War Expansion

Finnish investment capital was scarce after the war, and Aero was forced to turn to the government to fund new equipment. In return for its backing, the Finnish government was allowed to acquire 70 percent of Aero's shares. The remainder were held by banks, other companies, and private citizens.

Through the Finnish Ministry of Supply, Aero purchased several surplus American C-47s and commissioned the Dutch aircraft company Fokker to convert them to their civilian equivalent, the DC-3. These aircraft entered service in May of 1947, emblazoned with the title Finnish Air Lines and featuring Aero's first flight attendants.

The following year, Aero resumed international services and by 1949 had retired all of its DC-2s, Rapides, and Junkers aircraft. In preparation for the Helsinki Olympic Games, which were rescheduled for 1952, Aero reconfigured its DC-3s and designed the new Helsinki Airport near Seutula. After transporting more than 100,000 passengers in 1952, Aero began to investigate a need for larger, more modern aircraft and decided on the Convair 340, a 44-passenger aircraft with a pressurized cabin, and the more advanced Convair 440 Metropolitan.

In 1953 the company introduced the name Finnair in its advertising materials and on its aircraft, partly out of concern that the name Aero had become outdated and generic. The company's official name, however, did not change. By 1957 Finnair operated one of the densest domestic route structures in Europe. The short-term nature of this structure led the company to plan for a new generation of aircraft to replace its Convairs and DC-3s on long-distance flights. Aero chose the 73-passenger Sud Aviation Caravelle twin jet, which entered the fleet in 1960.

The Caravelles were later deployed on winter charter flights to Majorca, the Canary Islands, and Rimini. At the time, International Air Traffic Association (IATA) regulations prevented Aero from directly operating charter and student flights. Instead, the company created a subsidiary, Polar Air, to handle this business. In 1963, however, Aero acquired a 27 percent interest in another Finnish airline, Kar Air, which took over Polar Air's operations.

In 1960, after 13 years of leadership under Leonard Grandell, an economist named Gunnar Korhonen was appointed managing director of Aero O/Y. Several changes occurred under Korhonen's leadership. In addition to introducing the Caravelles, Aero opened its Finnair Aviation College to train pilots who could be recruited out of the Finnish air force. The company's route structure continued to expand, adding flights to Leningrad, Athens, Dubrovnik, and Brussels.

Early in 1968 the company officially adopted Finnair Oy as its new corporate name and laid plans to expand into the hotel and travel agency businesses as part of an effort to achieve greater control over all aspects of the tourism industry. The company took delivery of its first 189-passenger DC-8 the following year, placing it into service on a new route to New York. Two years later, continuing its association with Douglas Aircraft, Finnair added somewhat smaller DC-9 aircraft to its fleet and opened new routes to Lisbon and East Berlin.

In 1975 Finnair began operating wide-body DC-10 aircraft, opening routes to Bangkok and numerous destinations in the Middle East. Four years later the airline created a subsidiary to handle domestic charter operations and general aviation maintenance and repair services. In 1982 Finnair revived the Aero Oy name for another subsidiary handling technical services and aircraft leasing and sales activities. Forced to close both its service to Baghdad, because of the war between Iran and Iraq, and its Amman route, due to low demand, Finnair opened routes to Seattle and Los Angeles in 1981 and to Tokyo via the North Pole in 1983.

Like many other Finnish businesses, Finnair benefited greatly from its government's unusual relationship with the former Soviet Union. Finland shared many parallel interests with the Soviet government. As an agent of the Finnish government, and because of its proximity, Finnair was afforded greater access to Eastern Bloc cities and airspace than Western airline companies, and it succeeded in using this as a corporate asset.

One result of this relationship was a growth in air freight, which compelled the company to invest heavily in a new air cargo facility at Helsinki Vantaa Airport in 1986. Political changes in the Soviet Union after 1986 opened Eastern Europe to more Western airlines and shifted Soviet business alliances to Germany, where greater investment capital was available. In addition, Finnair was faced with high cost structures, which led the company's chairman, Antti Potila, to undertake a series of cost-cutting moves and reduce the number of employees by ten percent beginning in 1990.

Kar Air and Finnaviation were reorganized as independent subsidiaries and made responsible for their own productivity. Finnair, however, managed to retain its position as the gateway airline to the Soviet Union and the Baltic states. This position was strengthened in 1989 after Finnair backed the opening of Strand Inter-Continental in Helsinki and the Savoy Hotel in Moscow. Also maintaining its close relationship with aircraft manufacturer McDonnell-Douglas, Finnair has added advanced MD-11, Airbus A-300, and ATR planes to its fleet.

Finnair shares were first listed on the Helsinki Stock Exchange in May 1989. By this time the carrier was flying about five million passengers per year.

Finding a Place in the New World Order

In the early 1990s Finnair teamed with Scandinavian Airlines System (SAS), Austrian Airlines, and Swissair to pool financial resources for future aircraft purchases. The European Quality Alliance collapsed, however, as Chairman Antti Potila felt Finnair was losing its independence. Finnair then concentrated on an alliance with Lufthansa beginning in 1991.

After the Soviet Baltic states gained their independence from Moscow in 1990, Finnair stepped in to help establish an Estonian airline company. The airline soon had distinguished service and air safety records, and maintained one of the most modern air fleets in Europe. It existed under the majority control of the government of Finland, with the remaining share in the hands of banks and other institutional investment interests.

Finnair launched some cost-cutting measures in 1991. It pulled back flights from the Mediterranean in response to the Persian Gulf crisis, but found that Portugal increased in popularity as a tourist destination.

New Horizons

The onset of glasnost not only opened up new routes with Russia but also allowed more direct flights to the Far East. However, the airline also had to deal with an economic recession during this time, accumulating losses of FIM 576 million between 1991 and 1993. A recovery came in 1994, both within the Finnish economy and in regards to business traffic in particular. Still, the company continued to reduce its work force as a means of remaining profitable.

Another part of the company's strategy in the mid-1990s was to reduce the number of aircraft types it operated. Finnair began replacing its DC-9s with used McDonnell Douglas MD-80 aircraft. A stock offering in January 1995 helped fund the purchases. This offering received much attention from European investment institutions and raised foreign ownership of the company from 5 to 16 percent.

In 1997, Finnair's board voted to replace the MD-80 airliners on its European routes with Airbus aircraft, the order to be worth FIM 2 billion. Finnair still operated a dozen DC-9 aircraft and in June 1998 announced it was retrofitting them with newly available hush kits. The company also leased several Boeing 757s.

Finnair completed expansion work on its cargo terminal late in 1997. The company carried approximately 80,000 tons of mail and cargo, providing about FIM 900 million, or 13 percent, of the company's total turnover. The Far East accounted for 30 percent of its business.

Finnair terminated its partnership with Lufthansa after the German carrier teamed with SAS in 1997. Finnair then installed a second hub in Stockholm--the site of SAS's headquarters but not its operating center, which was Copenhagen. Finnair fed the hub via code shares with other Scandinavian carriers and declared itself Stockholm's official airline. It also teamed with Maersk Air to compete on one of SAS's most lucrative routes, Copenhagen-Stockholm, after SAS began flying from Frankfurt into Maersk's home base of Billund, Denmark. Meanwhile, competitors were slowly taking away from Finnair's domestic market share.

Early in 1998, Finnair and SAS rival British Airways announced a new alliance, which offered travelers the prospect of reduced fares. The cooperation was intended to help both carriers cope with competing alliances such as the Star Alliance created in 1997 of SAS, Lufthansa, United, Thai International, Varig, and Air Canada. Code sharing agreements with Delta, Braathens, Swissair, Austrian Airlines, Sabena, and Maersk Air were in force as well. Flights outside of Europe remained a low priority for the carrier; however, the company planned to triple its flights to Russia.

In 1998, Finnair celebrated its 75th anniversary. Demand increased in all sectors while costs were contained. Passenger growth boomed in early 1998 and Finnair carried nearly four million passengers. The government of Finland owned 59.80 percent of Finnair shares in March 1998. Management hoped to see a decrease in this figure and to retain more capital within the company.

Principal Subsidiaries: Malmilento Oy; Area Travel Agency Ltd.; Area Baltica Reisibüroo AS (Estonia); ZAO Norvista (Russia); Estravel AS (Estonia; 72%); BMR Balti Meediareklaami AS (Estonia; 72%); Finlandia Agence de Voyages S.A.R.L. (France; 99.8%); Finlandia Travel Agency Ltd. (United Kingdom); Mikkelin Matkatoimisto Oy (51%); Norvista Travel AB (Sweden); Finland Travel Bureau Ltd. (99.8%); Kuopion Matkatoimisto Oy; Varkauden Matkatoimisto Oy (69.6%); Oy Aurinkomatkat--Suntours Ltd Ab (97.1%); Finnair Travel Services Oy; Oy Finnmatkat--Finntours Ltd Ab; Norvista Travel Ltd. (Canada); Norvista Ltd. (United States); Norvista S.R.L. (Italy); Norvista Reisen GmbH (Germany); Finnair Gateway Ravintolat Oy; Finncatering Oy; Amadeus Finland Oy (95%).