Latvian flag carrier airBaltic has formally filed for Chapter 11 bankruptcy protection in New York to restructure its liabilities and safeguard operational continuity amid an industry-wide crisis triggered by the armed conflict between the United States and Iran.
Comprehensive Restructuring and Backstop Financing
To sustain operations throughout the court-supervised process, the carrier confirmed it has secured a debtor-in-possession (DIP) financing commitment of €350 million (approximately $405 million). This credit facility is backed by a syndicate of institutional lenders comprising:
- Strategic Value Partners
- Barclays
- Hayfin Capital Management
- Morgan Stanley
- Oaktree Capital Management
Speaking at a press conference, Chief Executive Officer Erno Hilden detailed that this facility carries an interest rate near 12% and remains subject to bankruptcy court approval. Hilden further stated that the carrier will spend the coming months negotiating sustainable terms with key stakeholders, targeting an annual operating profit improvement of €44 million.
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The airline—majority-owned by the Latvian state, with Lufthansa holding a 10% minority stake—confirmed that flight schedules will operate as planned throughout the judicial restructuring, which is slated for completion by June next year.
Aviation Fuel Crisis and Creditor Pressure
In its court filing, airBaltic’s board argued that the airline is facing severe liquidity stress stemming from compounded economic and geopolitical headwinds. The military conflict between the US and Iran led aviation turbine fuel (jet fuel) prices to double, sparking the commercial airline sector’s steepest crisis since the COVID-19 pandemic.
Prior to the bankruptcy filing, bondholders were scheduled to vote on a proposal to raise up to €257 million in super-senior notes maturing in February 2027 at a 25% coupon. However, Latvian Prime Minister Andris Kulbergs indicated that the Chapter 11 filing was triggered after bondholders representing over 70% of the carrier’s debt voted in favor of liquidation.
Kulbergs described the court-supervised restructuring as one of the best viable paths forward, granting the carrier the time and legal framework necessary to execute its operational turnaround while the government continues to pursue a strategic equity partner.
Fleet Right-Sizing and Network Realignment
The airline currently operates an all-Airbus A220-300 fleet of approximately 50 aircraft and had projected expanding to 100 airframes. However, aviation analysts and government officials have pointed out significant structural imbalances between fleet capacity and market demand:
- Loss of Strategic Connecting Markets: Aviation analyst Simonas Bartkus noted that the carrier had structured its model around funneling high-volume connecting traffic through Riga from Russia, Belarus, and Ukraine—traffic flows that have permanently collapsed following geopolitical shifts.
- Overcapacity and Network Overexpansion: Bartkus highlighted that the carrier expanded well beyond its core market demand, leaving it with minimal strategic buffer when surging jet fuel prices accelerated its cash burn.
- Accelerated Cash Burn: In a video address on X, Prime Minister Kulbergs revealed that by April the carrier had depleted €380 million raised via bond issuances in 2024, followed by the exhaustion of a €30 million emergency state loan by June. While management attempted to place surplus capacity on wet-lease (ACMI) and dry-lease contracts, Kulbergs asserted that serving the domestic Latvian and wider Baltic network requires merely 30 aircraft, not 100.
Under Chapter 11 protection, airBaltic will focus on right-sizing its fleet of Airbus A220-300 mainline narrowbodies, renegotiating financial obligations, and establishing a sustainable capital structure before mid-2027.
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