AirBaltic files for Chapter 11 bankruptcy as Iran war costs bite

By Andrius Sytas and Gianluca Lo Nostro

Sept 14 (Reuters) - Latvia's ‌airBaltic voluntarily filed for protection ​under Chapter ​11 of the U.S. Bankruptcy Code in New York, it said on Monday, as it seeks to restructure its debt pile and survive a deepening sector-wide crisis brought on by the Iran war.

AirBaltic said in a statement it had secured a commitment for €350 million ($405 million) ‌in financing from lenders including Strategic Value Partners, Barclays, Hayfin Capital Management, Morgan Stanley and Oaktree Capital Management to support ⁠its operations during the restructuring.

The U.S. war with Iran has caused jet fuel prices to double, sparking the air travel sector's worst crisis since the COVID-19 pandemic. Investors and executives have warned that ‌carriers with stretched balance sheets risked collapse.

As ‌its financial position deteriorated, airBaltic had been in discussions with creditors to raise short-term financing but struggled to agree terms. Yields on its bonds spiked, reflecting rising investor concern over the prospect of a default.

"AirBaltic has been experiencing acute financial stress due to a combination of financial and geopolitical factors," the ​airline's board wrote in a filing with the bankruptcy court.

'ONE OF THE BEST OPTIONS' TO KEEP AIRBALTIC GOING

AirBaltic, which has a fleet of some 50 Airbus A220-300 planes, is majority-owned by the Latvian government, with Lufthansa holding a 10% minority stake.

Latvian Prime Minister Andris Kulbergs said the Chapter 11 proceedings ⁠were initiated after bondholders with over 70% of the value of the debt declined to approve a loan needed for the airline's survival and were instead opting for liquidation.

"I view this solution as one of ​the best options for ensuring airBaltic's viability, as it provides the necessary tools and time to implement the restructuring plan," Kulbergs said in a statement.

The government is continuing to look for a strategic investor as airBaltic reduces its fleet and ​reorganises obligations, he added.

AirBaltic is the second airline casualty linked to the war after Spirit ‌Airlines collapsed in May. The U.S. discount carrier, which filed for bankruptcy months before the conflict began in late February, had failed to secure creditor support for a government bailout plan.

Other airlines like AirAsia, Southeast Asia's largest budget carrier, are seeking ⁠fresh capital.

CHAPTER 11 OFFERS PROTECTION FROM CREDITORS

AirBaltic said its decision aimed to gain protection from creditors as it negotiates a restructuring of its debt. Flights would operate as scheduled during the court-supervised process. And it expects to finish the Chapter 11 proceedings by June next year, it said.

Before the filing, airBaltic's bondholders had been due to vote on the company's ⁠plan to raise up to €257 million through new super-senior debt due in February 2027, at a rate of 25%.

Yves Schwyter, founder of aviation capital risk intelligence firm Vectus Intelligence, said ​the Chapter 11 route was a "probably more sustainable capital structure than what was on the table a week ago."

Dudley Shanley, analyst at Goodbody, said it had been clear for some time that the carrier would need to reorganise its capital structure.

"I suspect airBaltic will continue to shrink its footprint," he said.

The airline had aimed to grow its fleet to 100 ‌planes, and, according to aviation analyst Simonas Bartkus, was expecting to develop transit traffic from Russia, Belarus and Ukraine through Riga.

"This is no longer available, and the company became too large for its market... The rise in fuel cost ‌made the situation acute, they had no time to find solution," he said.

Prime Minister Kulbergs wrote in a post on X that by April airBaltic had "burned through" €380 million raised via ⁠bonds issued in 2024. A €30 million emergency government loan ran out ‌in June, he added, and the airline had ​tried to lease out its excess aircraft.

"Serving Baltic and Latvian routes requires only 30 aircraft, not 100," he wrote.

($1 = 0.8653 euros)

(Reporting by Gianluca Lo Nostro in Gdansk, Andrius Sytas in Vilnius, Joanna Plucinska in London; Editing by Stine Jacobsen, Milla Nissi-Prussak, Adam Jourdan ‌and Joe Bavier)

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