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airBaltic: Why Latvia Flew to Manhattan

The UK route was on the table and lost. Latvia’s flag carrier chose the Southern District of New York because its own banker swore the English option offered, in his words, limited restructuring tools

By EURx · 22 October 2026 · Case summary · Deck summary

Latvia's flag carrier had an English restructuring on the table and turned it down. Its own banker swore why: the economics were too expensive to justify the limited restructuring tools it offered. The financing it took instead is now being objected to from both ends of the bond, by the ad hoc group through Hogan Lovells, and separately by five retail holders with no lawyers at all, one of them holding 1,078 euro of notes bought through a phone app.

Sources

Everything below is from the docket in In re Air Baltic Corporation AS, Case No. 26-12188 (LGB) (Bankr. S.D.N.Y.): the Declaration of Vitolds Jakovlevs, CFO, in support of the petitions and first day pleadings (Dkt. 14, 14 September 2026, 69 pages); the DIP motion (Dkt. 20); the Declaration of Stephan T. Krastev of Seabury Global Aviation Advisors in support of it (Dkt. 21); the limited objection of the Ad Hoc Group of 2029 Bondholders (Dkt. 25, 15 September 2026); and the five limited objections to a final DIP order at Dkts. 54, 65, 66, 67 and 68. Dual-currency figures are the declarations' own conversions. Anything from press or Latvian government statements is flagged in the text. The interim DIP order (Dkt. 45) is cited here only as quoted in Dkt. 25.

The case is before Judge Lisa G. Beckerman, filed 14 September 2026. The debtors are Air Baltic Corporation AS, Air Baltic Training SIA and Baltijas Kravu Centrs SIA. Milbank LLP acts for the debtors (Evan R. Fleck, Jaimie Fedell, Andrew M. Leblanc, Erin E. Dexter), with Clyde & Co also advising; Seabury Global Aviation Advisors is banker; Hogan Lovells (David Philip Simonds) and Cadwalader act for the ad hoc group of 2029 bondholders, whose members include Klirmark Capital and which Dkt. 25 says is in the process of being reconstituted; Epiq is claims agent.

The leases, not the bonds

Almost every write-up leads with the 380 million euro of 2029 bonds. The declaration puts a number beside them more than twice as large that almost nobody quoted.

Funded debt is 503.3 million euro (583.9 million dollars): 398.2 million euro of 2029 senior secured bonds, 78.6 million euro of finance leases, 7.9 million euro owed to BluOr Bank on a secured facility, and an 18.6 million euro unsecured government loan. Set against that are operating lease liabilities of 855.6 million euro (992.5 million dollars) across 46 aircraft and 7 engines, excluding the finance leases (Jakovlevs Decl. paras. 46, 53).

The business plan turns on returning roughly twenty surplus aircraft and reprofiling the rest, alongside a profit improvement programme targeting about 45 million euro of annual savings and a fleet cut to thirty-six aircraft by end 2026, recovering to about forty by 2031 (paras. 12, 71). The fleet is the plan, the fleet sits inside the leases, and Krastev swore those returns and reprofilings could not have been done consensually before late 2026 at the earliest (Krastev Decl. para. 26).

A restructuring of the bonds alone would not have saved this airline.

The hedge sale

In March 2026 the company sold all of its remaining fuel hedges to generate approximately 5.7 million euro of emergency liquidity, in order to avoid defaulting on the minimum liquidity covenant under the 2029 bonds (Jakovlevs Decl. para. 11). It entered 2026 assuming jet fuel at roughly 685 dollars per ton. After the Iran conflict broke out prices peaked near 2,000 dollars, and the company was 90% unhedged going in and fully unhedged after the sale (paras. 10, 59).

The declaration supplies its own sensitivity: every 100 dollars per ton costs about 16.5 million dollars on expected consumption of 165 thousand tons for April to December 2026. It also reports the actual average for the first eight months of 2026 at 1,168 dollars per ton, 454 dollars above the same period in 2025 (para. 59). Multiplying the declaration's own figures puts the incremental fuel cost at roughly 75 million dollars against the prior year.

So a covenant written to protect bondholders pushed the company to sell the hedge on its largest variable cost for 5.7 million euro, months before that cost roughly doubled. The 25 million euro liquidity covenant it was protecting was itself suspended by those same bondholders five months later (para. 75).

The 75 million dollar figure is arithmetic on the declaration's stated sensitivity and stated price move, not a number the company gives. Treat it as an order of magnitude.

What the money looks like

The DIP is 350 million euro (406 million dollars) of superpriority senior secured term loan from Strategic Value Partners and a syndicate. The structure matters more than the headline, because the priming fight has been deliberately postponed.

Tranche 1 is 175 million euro, of which 140 million came on the interim order and the balance on the final order (Krastev Decl. para. 20). Its collateral is eight A220-300 aircraft, seven PW1521G engines, unencumbered property and proceeds, and it does not prime the bond collateral (para. 21). The first use of proceeds is to repay roughly 78.9 million euro of EDC- and Axiom-financed debt on the finance-lease aircraft and engines, plus interest, fees and make-whole, releasing that collateral to the DIP lenders (para. 21).

Tranches 2 and 3, 125 million and 50 million euro, are each reduced dollar for dollar by financing from any non-DIP lender, and become available only on a separate order authorising priming of the bond collateral (paras. 11, 21).

Interest runs at 12-month SOFR plus 8.00%, payable monthly, PIK at the company's option, default rate plus 3.00% (para. 23). The fees are a 5% backstop commitment fee (PIK, earned on commitment), a 5% upfront fee on the full 350 million euro (PIK), a 5% exit fee on original commitments, and a make-whole fee subject to the final order (para. 23). Maturity is the earlier of nine months from the petition date and 250 days from Tranche 1 closing, with a three-month extension for 0.75% (para. 22). The milestones require an interim order within 5 days and a final order within 35 days, so 19 October 2026 (para. 12).

Three separate 5% fees on a 350 million euro facility, two payable in kind and one earned simply on commitment, plus a make-whole. Krastev does not claim this is cheap. He claims it is within the market for comparable DIP financings and that everything else was worse (paras. 23, 26).

Why England lost

The ad hoc group of 2029 bondholders did not merely propose worse pricing. Its final and best proposal was an out-of-court bridge to a restructuring proceeding in the United Kingdom (Krastev Decl. para. 16). The choice in front of the board was explicitly England versus New York.

Krastev lists what the English route carried (para. 16): a priming lien on all collateral; proceeds used to exercise purchase options on the finance-lease aircraft and encumber them; demanding conditions precedent and subsequent, including installing titled engines and landing gear onto finance-lease aircraft in a short window, which he says could disrupt operations; expensive economics; maintenance reserves previously paid to the finance lessors pledged as security, limiting access to liquidity; and an elevation of the prepetition bonds held by participating bondholders.

His conclusion is the line worth quoting whole: the competing proposals, including the ad hoc group's, 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 (para. 26).

That is a banker saying under penalty of perjury that an English restructuring plan was not worth its price given what it could do. Europe now has cross-class cram down in six jurisdictions. What it does not have anywhere is the combination this case needed: a deep market in priming new money, plus a statutory mechanism for shedding twenty aircraft leases on the debtor's timetable rather than the lessors'.

Note why nobody would lend outside that structure. Krastev says third-party discussions stalled because a significant portion of the assets were already encumbered for the bonds and no party would lend on less than a super-senior basis, which required bondholder consent he could not see a path to obtaining (para. 14). Four third-party term sheets came in, and the company ran an out-of-court process alongside the DIP process (paras. 14, 18).

Objections from both ends

The ad hoc group objected first. On 15 September, the day after the filing, it filed a limited objection and reservation of rights through Hogan Lovells, aimed at both the DIP motion and the motion to pay non-US vendors (Dkt. 25). Its complaint is not that the company needs no money. It is that the interim relief front-loads a permanent transfer of value before any evidentiary hearing, that the adequate protection package is thin, and that the non-interference provisions are overbroad.

Its sharpest evidentiary point turns the company's own numbers around. The first day declaration reports roughly 1.8 billion dollars of total assets against roughly 2 billion dollars of total liabilities, which is negative equity, so there is no equity cushion available to serve as adequate protection and valuation evidence becomes unavoidable (Dkt. 25, Pg. 9).

Then came the retail holders. Five limited objections to a final DIP order followed: Tobias Matthias Schwender (Dkt. 54, 23 September), Isik Naci Atilla (Dkt. 65, 29 September), and Andreu Santacana Jane, Susana Sanchez Torres and Carolina Cuartero (Dkts. 66, 67 and 68, all 30 September). Every one is an individual beneficial holder of the 14.50% bonds appearing without counsel. One of them holds 1,078.43 euro in principal, held through Trade Republic's Spanish branch, with a broker confirmation attached as an exhibit (Dkt. 68 para. 5).

They are near-identical in structure and share phrasing, so treat them as a coordinated retail filing rather than five independent analyses. They also state expressly that they are not members of the ad hoc group and have not authorised anyone to consent on their behalf (Dkt. 68 para. 7).

A 380 million euro high yield bond from a Latvian flag carrier, distributed widely enough through European neobrokers that four-figure retail positions are now filing pro se in a Manhattan bankruptcy court.

And the argument they built is a real one. They do not oppose the DIP as operating liquidity. They object to one thing: approval of a permanent reordering of collateral priority as though it were inseparable from the provision of liquidity. Liquidity is urgent, priority is permanent, and the second should not be decided by the urgency of the first (Dkt. 68 paras. 3 to 4).

The mechanism is Condition 3(d) of the bonds, mirrored at Clause 5.18 of the trust deed. On expiry or early termination of a finance lease over a financed leased aircraft or engine, the issuer undertakes to exercise its purchase option, become legal and beneficial owner, and take all action necessary to procure that each such owned asset is charged by first ranking security in favour of the security trustee for the bondholders (Dkt. 68 para. 9).

The DIP pays off the EDC and Axiom finance lease obligations, title to eight A220-300 aircraft and seven PW1521G engines transfers to the issuer, and first-priority DIP liens are granted over that same equipment, all as substantially concurrent transactions. The holders say that is precisely the event Condition 3(d) is directed at, and that granting the DIP first priority at that moment appears to render performance of the undertaking impossible (paras. 8, 10).

If they are right, the bondholders' interest in that equipment is not a residual claim to surplus proceeds. It is a contractual right to first-ranking security over identified assets, which changes what has to be adequately protected under sections 361, 363(e) and 364(d)(1) (para. 11). They also note the DIP documentation provides that protections given to bond collateral do not apply to the aircraft collateral (para. 13).

Their sequencing point is the sharp one. Nobody objects to DIP liens on aircraft that were already unencumbered at filing. This equipment was not. The DIP proceeds are what discharge the existing financing, and it is that discharge which creates the unencumbered status and simultaneously triggers the bondholders' right to first-ranking security (paras. 14 to 15).

The number in dispute

The retail objections present this as 255 million euro against 170 million. Read at source, the two figures are not rival valuations of the same thing, and the distinction matters.

The 170 million is the debtors' own. The DIP motion says using Tranche 1 proceeds to exercise the purchase options and take title to the fifteen finance-leased aircraft and engines, plus a simulator, will allow the debtors to access approximately 170 million euro of unencumbered value, and that doing so benefits all stakeholders including the bondholders by enhancing going-concern value (DIP Motion, citing Krastev Decl. para. 10). The interim DIP order records the same figure at Finding J.

The 255 million is not an ad hoc group appraisal either. It comes from airBaltic's own press release of 11 August 2026, which the ad hoc group cites for the proposition that the bondholders' interest in the aircraft and engine collateral has an appraised value of approximately 255 million euro (Dkt. 25 para. 19 and note 3).

The ad hoc group's actual claim sits on top of both. It says immediate exercise of the purchase options on entry of the interim order would be premature and would irreversibly transfer in excess of 250 million euro of surplus equity value from the bondholders' security package to the DIP lenders, before the court holds the evidentiary hearing the final order contemplates. Its requested relief is narrow: the interim order should bar any exercise of finance lease purchase options, or repayment of finance lease obligations out of DIP proceeds, until entry of the final order at the earliest (Dkt. 25 para. 20).

That is the fight. Not whether a number is 255 or 170, but whether the value freed by paying off the finance leases belongs to the DIP lenders as new collateral or to the bondholders under an undertaking written for exactly this moment, and whether that gets decided on an interim timetable.

The consent chronology

The retail holders set out a chronology taken from the issuer's own published notices (Dkt. 68 paras. 22 to 25), and it is the most quotable thing in the case.

A bondholder meeting was convened for 3 August 2026 by notice of 10 July, supplemented 28 July. Certain consents sought were special quorum resolutions, requiring at least 75% in principal amount to be represented. The quorum was not met. The meeting was reconvened on 17 August, at which the applicable quorum was 25%. The second supplemental trust deed was executed on 24 August 2026.

Among the amendments then approved: the quorum for a special quorum resolution was cut from 75% to 25% at a first meeting and to no minimum proportion at an adjourned meeting. Notice periods went from 21 days to 7 for a new meeting and 10 days to 3 for an adjourned one, and the interval before reconvening an adjourned meeting went from 14 days to 3.

Under the trust deed, modifying, amending, waiving or releasing the security is itself a special quorum resolution. So after 24 August, the security could be released at an adjourned meeting with no minimum attendance requirement at all. The issuer has not published attendance or voting figures for the 17 August meeting.

In early September the issuer convened a further meeting, moved by supplemental notice of 10 September to 15 September, expressly as a special quorum resolution, to amend the transaction documents including the trust deed and the security documents, and to instruct the trustee and security trustee to execute those and any intercreditor arrangements on the certificate of two officers of the issuer. A consent fee of 0.25% of principal was payable to holders voting in favour. The cases were filed on 14 September and that meeting was cancelled.

The record carries two dates for that call, and the framing differs more than the date does. Jakovlevs puts it at 4 September, saying airBaltic solicited consents on the ad hoc group proposal to maintain the viability of what was then the only committed proposal in hand that could prevent a liquidation (Dkt. 14 para. 76). The ad hoc group says that as late as 3 September the debtors were calling a bondholder meeting and soliciting consents on its out-of-court proposal, representing to the market that this was the financing solution under active pursuit (Dkt. 25 para. 6).

So at a meeting quorate only because the threshold had dropped to 25%, bondholders approved an amendment removing the minimum attendance requirement for releasing their own security. Three weeks later the company was in Chapter 11.

Nobody alleges misconduct, and neither does this piece. But the mechanics are the point: this is what a Latvian-law secured bond with a loose amendment regime looks like when it meets a US court, and it is exactly the kind of documentation detail that never gets covered in English.

Every other door

State money. Latvia injected 250 million euro in July 2020 under European Commission-approved state aid rules and 90 million across 2021 and 2022, taking its stake to 97.97%. As a condition it committed to an IPO exit not taking it below roughly 80.05% (Jakovlevs Decl. paras. 8, 65).

The IPO. A listing on Nasdaq Riga and the Frankfurt Prime Standard targeting 250 million euro, later referenced at 264 to 300 million, slipped repeatedly as European airline share prices fell (para. 69).

Lufthansa. A convertible for about 10% of equity for 14 million euro in 2024 to 2025, converting at the eventual IPO valuation with a dilution floor of 5%, plus a supervisory board seat (para. 67). Press reporting around the filing says it will not inject further capital.

The bridge loan. 30 million euro in April 2026, subordinated, uncollateralised, at market rates, maturing 31 August. About 12.9 million was repaid by July, leaving 18.6 million at filing (paras. 11, 52).

The bondholders. On 17 August they PIKed the August and November coupons and suspended the 25 million euro liquidity covenant (para. 75). In early September the company solicited consents on the ad hoc group proposal (para. 76). On 12 September it signed the DIP commitment letter instead (para. 77).

And the overhang nobody has priced: forty firm A220-300 orders remain outstanding with Airbus, aggregate list price in excess of 3 billion euro, plus about 92 million euro of Pratt & Whitney engine commitments. The revised business plan contemplates cancelling or indefinitely deferring them (paras. 40, 63). The largest unsecured creditor is not a lender. It is Pratt & Whitney at 66,517,890.34 dollars, then the Latvian environment agency at 42,431,900 dollars for emissions scheme payments and the Republic of Latvia at 20,066,586 dollars for the government loan (Dkt. 14, Schedule 2). The declaration separately warns that missing an EU Emissions Trading System surrender obligation of approximately 49.2 million dollars could lead member states to revoke the operating licences (para. 109). An emissions bill is existential here in a way it would not be for a US carrier.

What to watch

The final DIP order is due 19 October 2026 under the Tranche 1 milestones, with the objection deadline set at 4:00pm ET on 2 October (Dkt. 49). Whether the court treats Condition 3(d) as a live adequate protection question is the whole ballgame.

The priming order. Tranches 2 and 3, 175 million euro of the 350 million, do not exist until a court authorises priming the bond collateral. Deferred, not avoided.

The tranche reduction mechanic. Tranches 2 and 3 fall dollar for dollar against financing from any non-DIP lender, a structural disincentive to a competing bondholder facility.

Whether the ad hoc group presses its objection or settles. It has reserved its rights once already, and Dkt. 25 says the group is being reconstituted, which usually means the composition of the other side of the table is still moving.

Lease rejections. Forty-six aircraft and seven engines on operating lease against a plan needing about twenty returns. This is where bond recovery is actually decided.

The committee, appointed 25 September (Dkt. 58), with Pratt & Whitney the largest unsecured claim.

The state's position. Latvia is majority shareholder, unsecured lender, bondholder and tax authority in one case, under EU state aid constraints.

The precedent

SAS ran its restructuring through the same court between 2022 and 2024. Two Nordic-Baltic flag carriers with state involvement, four years apart, both in Manhattan, on either side of the EU Restructuring Directive's implementation.

Update, 22 October 2026: the September operating reports

The debtors filed their first monthly operating reports on 21 October (dkt. 162-164, Epiq), covering 14-30 September for all three chapter 11 debtors. Consolidated, they report operating receipts of $59.3 million against disbursements of $99.2 million; net financing proceeds of $86.0 million and a $1.0 million IATA net settlement bridge the gap to net cash flow of $47.1 million, leaving $58.2 million of total cash at month end, $54.3 million of it unrestricted, at an assumed EUR/USD rate of 1.14. The case page carries the figures.