OREANDA-NEWS. February 10, 2014. The European Commission's recently-begun investigation into last year's government loan to Estonian Air could end up bankrupting the company, said its CEO Jan Palmer, if the study finds the support to be in violation of EU state aid rules.

Palmer told ETV on Wednesday evening that the company does not have the 40.7 million euros, plus interest, needed to pay the state back if the Commission deems the loan illegal.

Estonia handed the national airline the massive loan last year to save it from going under and to allow the company to carry out restructuring. Such loans are subject to EU approval.

The European Commission announced on Tuesday that it will investigate whether the loan is in line with EU state aid rules and whether the restructuring plan, which has already been partially implemented, is suitable for the restoration of the company's long-term viability.

The conclusion of the investigation is expected to be made by the new Commission, which takes office in the second half of the year.

Estonian Air has been a magnet for bad news recently, as pilots said at the beginning of the week that they will demand a 40 percent pay-rise over the next three years. Palmer said the company is in no financial position to meet the demands, as doing so would unbalance figures written into the restructuring plan.