Case Summaries

Case Summary: airBaltic Chapter 11

Latvia’s state-owned airline filed Chapter 11 in New York after a 2026 jet fuel spike hit an airline with about 90% of its fuel unhedged. A €350 million DIP led by Strategic Value Partners repays the finance-leased A220s and takes first liens over them, which 2029 bondholders say moves more than €250 million of value out of their collateral.

By EURx · 2 October 2026 · A deck version of this summary is on Substack.

Business description

Based in Riga, Air Baltic Corporation AS (“airBaltic”) is the national airline of Latvia. airBaltic and two subsidiaries, Air Baltic Training SIA and Baltijas Kravu Centrs SIA (together, the “Debtors” or the “Company”), fly an all Airbus A220-300 fleet.

At the petition date the Company operated 46 aircraft and 7 engines under operating leases. Another eight A220-300s and seven Pratt & Whitney PW1521G spare engines were held under finance leases with EDC and Axiom. It still has 40 firm A220-300 orders with Airbus, at a list price above €3 billion, plus about €92 million of Pratt & Whitney engine commitments.

The Republic of Latvia owns 97.97% of airBaltic after state recapitalisations between 2020 and 2022. Lufthansa holds a €14 million convertible instrument for about 10% of the equity, with a seat on the supervisory board. The Debtors report about $1.8 billion of assets and about $2.0 billion of liabilities.¹

Corporate history

State recapitalisation

In July 2020 Latvia put €250 million into airBaltic under state aid rules approved by the European Commission, followed by €90 million across 2021 and 2022. That took the state to 97.97%. As a condition of the aid, Latvia committed to exit through an IPO that would not take its stake below about 80.05%.

The IPO that never happened

The Company prepared a listing on Nasdaq Riga and the Frankfurt Prime Standard, first targeting €250 million and later referenced at €264 million to €300 million. It was postponed repeatedly as European airline shares fell.

Lufthansa and the state bridge loan

Lufthansa invested €14 million through a convertible in 2024 and 2025, converting at the eventual IPO valuation subject to a 5% dilution floor. In April 2026 Latvia lent the Company €30 million, subordinated and unsecured, maturing 31 August 2026. About €12.9 million was repaid by July, leaving €18.6 million outstanding at the petition date.

Operations

Operating lease liabilities total €855.6 million ($992.5 million) across the 46 aircraft and 7 engines. The finance-leased equipment had about €78.6 million outstanding at the petition date. The revised business plan contemplates cancelling or indefinitely deferring the Airbus orders.

Two exposures stand out in the first day declaration. Missing an EU Emissions Trading System surrender obligation of about $49.2 million could lead member states to revoke the Company’s operating licences, and the Latvian environment agency is the second largest unsecured creditor with a $42.4 million claim. And fuel is the largest variable cost: every $100 per ton move in jet fuel costs about $16.5 million, based on expected consumption of 165,000 tons from April to December 2026.

Prepetition capital structure

The Debtors had about €503 million of funded debt at the petition date, most of it the 14.50% senior secured bonds due 2029.

The largest unsecured claims are Pratt & Whitney ($66.5 million), the Latvian environment agency ($42.4 million) and the Republic of Latvia ($20.1 million). An official committee of unsecured creditors was appointed on 25 September 2026 (Dkt. 58).

Events leading to the filing

Fuel

The Company went into 2026 assuming jet fuel at about $685 per ton, with about 90% of expected consumption unhedged. In March it sold its remaining hedges to raise about €5.7 million, to avoid breaching the minimum liquidity covenant on the 2029 bonds. After the Iran conflict broke out, jet fuel peaked near $2,000 per ton. The Company’s average for the first eight months of 2026 was $1,168 per ton, $454 above the same period of 2025.

Bondholder consents

On 17 August 2026 bondholders approved paying the August and November coupons in kind and suspending the €25 million minimum liquidity covenant. The resolutions passed at a reconvened meeting with a 25% quorum, after the 3 August meeting failed to reach its 75% quorum. The same amendments cut the quorum for a special quorum resolution to 25% at a first meeting and to no minimum at an adjourned one, and shortened notice periods from 21 days to 7. Under the trust deed, releasing or amending the security is itself a special quorum resolution. The issuer has not published attendance or voting figures.⁴

Out-of-court talks

The Debtors hired Seabury Global Aviation Advisors as investment banker and Milbank as counsel in March 2026, with Clyde & Co also advising. They received four third-party term sheets. According to the declaration of Stephan T. Krastev of Seabury, talks stalled because much of the asset base was encumbered for the 2029 bonds and nobody would lend except on a super-senior basis, which needed bondholder consent.

An ad hoc group of 2029 bondholders put forward a bridge financing leading to a UK restructuring, with a priming lien on all collateral and proceeds used to buy out the finance-lease aircraft. The Krastev declaration says the competing proposals “afforded insufficient time for the Company to execute the Business Plan and carried economics that were too expensive to justify the limited restructuring tools they offered.”

In early September airBaltic called a bondholder meeting to approve the ad hoc group’s proposal, with a 0.25% consent fee for holders voting in favour. The group says that as late as 3 September the Debtors were telling the market this was the financing they were pursuing. On 12 September the Debtors signed a DIP commitment letter instead. They filed on 14 September, and the bondholder meeting set for 15 September was cancelled.

The Chapter 11 case

Business plan

• Return about twenty surplus aircraft and reprofile the remaining leases.
• Shrink the fleet to 36 aircraft by the end of 2026, recovering to about 40 by 2031.
• A profit improvement programme targeting about €45 million of annual savings.
• Cancel or indefinitely defer the outstanding A220-300 orders.

The Krastev declaration says the aircraft returns and lease reprofilings could not have been done consensually before late 2026 at the earliest.

€350 million DIP facility

Strategic Value Partners and a syndicate provide a €350 million ($406 million) superpriority senior secured term loan in three tranches.⁵

• Tranche 1, €175 million. €140 million on the interim order and the rest on the final order. Secured by the eight A220-300s, seven engines, unencumbered property and proceeds. It does not prime the bond collateral. Proceeds first repay about €78.9 million of EDC and Axiom debt, releasing that equipment to the DIP lenders.
• Tranches 2 and 3, €125 million and €50 million. Available only on a separate order authorising priming of the 2029 bond collateral, and reduced euro for euro by any non-DIP financing.
• Pricing. 12-month SOFR + 8.00%, payable monthly and PIK at the Company’s option. Fees: 5% backstop (PIK, earned on commitment), 5% upfront on the full €350 million (PIK), 5% exit, plus a make-whole subject to the final order.
• Maturity and milestones. The earlier of nine months after the petition date and 250 days after tranche 1 closes, extendable three months for 0.75%. Final DIP order due within 35 days of filing, which puts the milestone at 19 October 2026.

Advisers

Debtors: Milbank (counsel), Clyde & Co, Seabury (investment banker), Epiq (claims agent). Ad hoc group: Hogan Lovells and Cadwalader.

The fight over the aircraft collateral

Ad hoc group objection

On 15 September the ad hoc group, whose members include Klirmark Capital, filed a limited objection (Dkt. 25). It argues the interim relief moves value permanently before any evidentiary hearing and that the adequate protection package is too thin, pointing to assets of about $1.8 billion against liabilities of about $2.0 billion as showing no equity cushion.

The group cites airBaltic’s own 11 August 2026 press release, which put the bondholders’ interest in the aircraft and engine collateral at about €255 million, and says exercising the purchase options under the interim order transfers more than €250 million of surplus equity value from the bondholders to the DIP lenders. The DIP motion puts the unencumbered value unlocked by the same step at about €170 million (Dkt. 20).

Retail bondholder objections

Between 23 and 30 September five individual holders of the 2029 bonds filed limited objections without counsel (Dkts. 54, 65, 66, 67 and 68). They say they are not part of the ad hoc group and have not authorised anyone to consent for them. They do not oppose the DIP as operating liquidity. Their target is Condition 3(d) of the bonds: when a finance lease ends, the issuer must buy the asset and grant first-ranking security over it to the bond trustee. Under the DIP, payoff, transfer of title and the grant of first-priority DIP liens happen at the same moment, which they argue makes that undertaking impossible to perform.

Key dates

• 12 September 2026: DIP commitment letter signed.
• 14 September 2026: Chapter 11 petitions filed.
• 25 September 2026: Unsecured creditors’ committee appointed.
• 2 October 2026, 4:00pm ET: Objection deadline for the final DIP order (Dkt. 49).
• 19 October 2026: Final DIP order milestone.

1. As set out in the first day declaration and cited in the ad hoc group objection (Dkt. 25). 2. On 17 August 2026 holders consented to PIK the August and November 2026 coupons and to suspend the €25 million minimum liquidity covenant. 3. €30 million bridge loan made in April 2026, maturing 31 August 2026. 4. Chronology from the retail bondholder objections (Dkt. 68), drawn from the issuer’s published notices. 5. Terms from the DIP motion (Dkt. 20) and Krastev declaration (Dkt. 21).