**AirBaltic Files for Chapter 11 Bankruptcy Amid Sector Crisis Linked to Iran War**
Latvia’s national airline, airBaltic, has voluntarily filed for Chapter 11 bankruptcy protection in New York, as announced on Monday. The move comes as the airline grapples with significant financial challenges exacerbated by the ongoing conflict in Iran, which has led to soaring jet fuel prices and a broader crisis within the aviation sector.
In a statement, airBaltic indicated that it aims to restructure its substantial debt load and navigate the current turmoil affecting the airline industry. The company has secured a commitment for €350 million (approximately $405 million) in financing from a consortium of lenders, including Strategic Value Partners, Barclays, Hayfin Capital Management, Morgan Stanley, and Oaktree Capital Management. This funding, which carries an interest rate of around 12%, is pending court approval.
CEO Erno Hilden emphasized the airline's commitment to engaging with stakeholders to establish sustainable terms during the restructuring process. He noted that airBaltic is targeting an annual profit improvement of €44 million. Despite the bankruptcy proceedings, the airline will continue to operate its flights as scheduled, with the restructuring expected to be completed by June 2024.
The airline's financial distress has been attributed to a combination of geopolitical factors and the rising costs of operation due to the Iran conflict. The U.S. war with Iran has reportedly caused jet fuel prices to double, contributing to what many industry experts describe as the worst crisis for airlines since the COVID-19 pandemic. Hilden stated that airBaltic has been under "acute financial stress," with the airline's board detailing approximately $583 million in funded debt and finance lease liabilities, alongside €106 million owed in payroll and airline taxes and fees.
AirBaltic operates a fleet of around 50 Airbus A220-300 aircraft and is primarily owned by the Latvian government, with Germany's Lufthansa holding a minority stake of 10%. Prior to the bankruptcy filing, airBaltic's bondholders were set to vote on a plan to raise up to €257 million through new super-senior debt, due in February 2027, at a rate of 25%. However, with over 70% of the bondholders opting for liquidation, the decision to file for Chapter 11 was made.
Latvian Prime Minister Andris Kulbergs expressed support for the Chapter 11 proceedings, viewing them as a viable option to ensure airBaltic's survival. He stated that the process provides the necessary tools and time for the airline to implement its restructuring plan while the government continues to seek a strategic investor.
AirBaltic’s bankruptcy filing marks it as the second airline affected by the Iran war, following Spirit Airlines, which collapsed in May after failing to secure creditor support for a government bailout plan. Other airlines, such as AirAsia, are also seeking fresh capital to navigate the challenging landscape.
Industry analysts have noted that Chapter 11 can offer a protective framework for airlines to reorganize and stabilize their operations. Hilden, who previously led Scandinavian airline SAS through similar proceedings, is optimistic that airBaltic can emerge from this process in a stronger position. John Strickland, an aviation analyst, remarked that the Chapter 11 route may provide a more sustainable capital structure than previous proposals.
The airline had ambitions to expand its fleet to 100 aircraft and was looking to develop transit traffic from Russia, Belarus, and Ukraine through its hub in Riga. However, these plans have been hindered by the geopolitical climate, with analysts suggesting that the airline had grown too large for its market. Prime Minister Kulbergs revealed that airBaltic had "burned through" €380 million raised via bonds issued in 2024 by April and that a €30 million emergency government loan had been exhausted by June.
As airBaltic embarks on this restructuring journey, the airline industry continues to face uncertainties stemming from rising operational costs and geopolitical tensions, prompting many carriers to reassess their business strategies.