Estonia’s Economy Minister Juhan Parts signed the preliminary accord with SAS executives in Tallinn, his ministry said in a statement.
“The parties confirmed plans to change the collective ownership structure of Estonian Air,” the statement said.
The details would remain confidential until the final shareholders’ agreement had been concluded, it added, without giving a date.
The Estonian government launched talks in January with SAS about Estonian Air’s future and last month said that it hoped to complete the takeover in June or July.
SAS currently holds a 49-percent stake in Estonian Air. The government owns 34 percent and the remaining 17 percent belongs to Estonian investment company Cresco.
The Baltic News Service said the government will contribute to a capital increase under which its stake will increase to 66 percent.
The government has said that if it acquired a majority holding in the carrier, it did not plan to remain the main owner in the long term and would seek a new strategic investor.
As recently as November 2008, SAS had said it was considering buying the Estonian government’s share, reportedly because of concerns about Estonian Air’s financial woes and the belief that it needed a capital injection which the government was then unwilling to provide.
Estonian Air has gradually recovered since then but SAS has been refocusing on its Nordic operations to stem its own financial problems, offloading subsidiaries such as Spain’s Spanair.
Estonian Air was created as a state-owned carrier in 1991, the year the Baltic nation of 1.3 million people won independence from the crumbling Soviet Union.
In 1996, the government decided to privatise it, launching a tender for a 66-percent stake which was won by Danish aviation company Maersk Air working with Cresco. Maersk Air sold its 49-percent share to SAS in 2003.
Estonian Air is a minnow in the airline market, with a fleet of six planes.