airBaltic enters Chapter 11: can it pull out of the nosedive?

airBaltic has entered a US court-supervised Chapter 11 restructuring after months of attempts to stabilise its finances. Flights continue and the airline has commitments for €350 million of new financing. The procedure now has to answer a more difficult question: whether airBaltic can emerge as a viable business, and what that will cost its shareholders and creditors.

1. Why Chapter 11 — and why now?

On 14 September, airBaltic and two subsidiaries voluntarily filed for Chapter 11 protection in the US Bankruptcy Court for the Southern District of New York.

The immediate message to passengers is simple: airBaltic continues flying. Existing tickets and reservations remain valid, sales continue and the airline says its normal customer operations are unaffected.

For the company, Chapter 11 changes the financial rules around those operations.

Instead of individual creditors trying to enforce old claims separately, debts, leases and other contracts can be dealt with inside one court-supervised restructuring. airBaltic remains in control of the operating business while it negotiates with creditors and seeks approval for a restructuring plan.

The company says the US procedure is suitable because its financing, creditors, aircraft leases and other major obligations extend across several countries. Chapter 11 provides one recognised legal framework for dealing with those relationships.

The decision also came after airBaltic’s need for liquidity had become urgent.

Fitch Ratings estimated before the filing that the airline needed about €156 million in short-term funding to maintain operations. airBaltic was attempting to raise up to €257 million through new super-senior financing carrying a 25% annual interest rate. That transaction required support from existing bondholders because the new lenders would move ahead of part of the existing debt in the repayment hierarchy.

A bondholder meeting scheduled for 11 September was postponed. airBaltic filed for Chapter 11 three days later after the out-of-court financing negotiations failed to produce the required solution.

Under Chapter 11, the airline has another source of liquidity. airBaltic says it has received commitments for €350 million in debtor-in-possession, or DIP, financing, arranged by Strategic Value Partners and involving Barclays, Hayfin Capital Management, Morgan Stanley, Oaktree Capital Management and SVP.

DIP financing is a specialised loan available to a company during a Chapter 11 process so that it can continue operating while its finances are restructured.

According to airBaltic, the facility carries an interest rate of SOFR +8%, currently around 12%. The financing is still subject to the usual court approvals and conditions. The court documents will determine how much can be drawn, when it becomes available, and what security and priority the new lenders receive.

DATA CARD — THE IMMEDIATE FINANCING PROBLEM

Chapter 11 filing — 14 September 2026

Fitch estimate of short-term funding need — ~€156m

Proposed pre-filing financing — up to €257m

Proposed pre-filing interest rate — 25%

DIP commitment — €350m

airBaltic target for completing Chapter 11 — around June 2027

airBaltic says it aims to complete the Chapter 11 process by approximately June 2027, subject to court approvals and other conditions.

The airline is still carrying more passengers. In August, passenger numbers increased by 5% year-on-year to 554,700. Flights increased faster, by 7.9%, while the load factor fell 2.3 percentage points to 83.9%. During the first eight months of 2026, airBaltic carried a record 3.567 million passengers.

Those figures establish that traffic has not collapsed. They do not establish the profitability of the network.

In the first quarter, operating revenue stood at €149.1 million, while operating expenses including compensation were €178.0 million — a gap of about €28.9 million before the financial result and exchange-rate effects. Q1 is seasonally weak and cannot be extrapolated across the year, but the figures show that the restructuring is not only a question of refinancing interest payments.

Fitch also separated the immediate liquidity problem from the longer-term one. It said that even if short-term funding were secured, airBaltic would still need a sustainable longer-term financing plan, potentially including a reduction in the fleet. That is Fitch’s assessment of the risks ahead, not a predetermined outcome of the restructuring.

2. Debt — and who is owed what

airBaltic does not have one creditor holding a €1.8 billion bill.

At 31 March 2026, the group reported €1.552 billion in assets and €1.802 billion in liabilities, leaving negative equity of €249.3 million. The important point is how those liabilities are divided and what rights different creditors have.

DATA CARD — AIRBALTIC BALANCE SHEET

31 March 2026

Assets — €1.552bn

Total liabilities — €1.802bn

Equity — −€249.3m

Lease liabilities — €883.8m

Borrowings — €472.3m

Unrestricted cash — €15.6m

The €883.8 million of lease liabilities represents the accounting value of future contractual lease payments, not €883.8 million of overdue invoices. The category also covers leases more broadly rather than aircraft alone. airBaltic’s accounts put undiscounted future lease and variable-lease cash flows at more than €1 billion.

Borrowings form another layer.

In May 2024, airBaltic issued €340 million of secured bonds due in 2029 with a 14.5% coupon, followed by an additional €40 million issue. The historical nominal amount therefore reached €380 million. In August 2026, bondholders agreed to capitalise scheduled interest payments rather than receive them immediately in cash, meaning €380 million no longer fully describes the current claim without further qualification.

The attempted €257 million emergency financing showed why the distinction between creditor groups matters.

The proposed new lenders would have received super-senior status. Bondholders participating in the restructuring could move into a higher-ranking tranche, while the remaining 2029 bonds would move lower in the repayment hierarchy. Reuters reported that the proposed collateral included rights associated with eight aircraft and seven engines.

Put simply, the negotiations were not only about borrowing more money. They were also about who would have first claim on available security if the company could not repay everyone in full.

Chapter 11 now moves that problem into court.

DATA CARD — DIFFERENT CLAIMS, DIFFERENT RIGHTS

Lease liabilities — €883.8m — Accounting value of future lease obligations

Total borrowings — €472.3m — Borrowed financing on the balance sheet

2029 secured bonds — €380m historical nominal issue — Part of borrowings; terms later amended

Pratt & Whitney — ~$66.5m — Largest listed unsecured claim

Latvian state — shareholder + bondholder + lender — Several overlapping legal positions

The rows cannot be added together. Some are accounting categories, some are individual creditor claims, and some overlap.

The Chapter 11 filing lists between 10,001 and 25,000 creditors. Pratt & Whitney is the largest name in the published list of unsecured claims, at about $66.5 million. Large Latvian public-sector entries include approximately $42.4 million connected with ETS payments to the Latvian Environment, Geology and Meteorology Centre, about $20.1 million listed for the Republic of Latvia in connection with the government loan, $15.4 million for the State Revenue Service and around $9.1 million for Riga Airport. Some listed claims are contingent or may later be disputed; inclusion in the filing is not the same as final court recognition of the amount.

Aircraft lessors sit in a different position. Their relationship with airBaltic is primarily based on lease contracts and rights connected with the aircraft, although a lessor may also appear separately with an unsecured claim for another amount.

The Latvian state has an even more unusual position.

It currently owns 88.37% of airBaltic, while Lufthansa owns 10%. Latvia is also a lender to the company and owns €50 million of the 2029 bond issue. The €50 million is therefore part of the wider bond exposure, not an additional amount to be added to it.

In August, the Saeima passed a special financial stabilisation law allowing the state to act as shareholder, creditor and bondholder. It permits the extension of the state loan, the capitalisation of claims arising from the loan and state-owned bonds, and possible participation in bridge financing through purchases of newly issued bonds.

That flexibility also raises an ownership question.

If state claims or other creditor claims are converted into equity, or if substantial new equity is issued as part of the restructuring, existing shareholders can be diluted. That could affect both the Latvian state’s 88.37% holding and Lufthansa’s 10% stake. No Chapter 11 restructuring plan has yet established how existing equity will be treated.

The issue is therefore wider than whether Latvia contributes more money. The state has to decide how to protect the value of existing claims, how much ownership it wants to retain and how much financial risk it is prepared to continue carrying.

3. Who is managing the restructuring?

The Chapter 11 filing came in September, but airBaltic had been changing the financial expertise around the company for more than a year.

Andrejs Martinovs became chairman of the Supervisory Board in February 2025. His background is in asset management and investment, and his formal responsibilities at airBaltic included financial management, investment strategy and capital raising. He identified financial targets, risk management and cost control among the board’s priorities.

Long-serving CEO Martin Gauss was removed on 7 April 2025 after the state shareholder expressed no confidence in him.

Erno Hildén was subsequently appointed CEO and took office on 1 December 2025. He had previously served as CFO of SAS and was part of its management when the Scandinavian carrier went through its own Chapter 11 restructuring.

In April 2026, airBaltic appointed Seabury as strategic and financial adviser. Its mandate included recalibrating operations, improving financial performance, strengthening the capital structure and supporting a structured capital raise.

The connection with SAS is relevant. Seabury served as investment banker and restructuring adviser to SAS and helped arrange its $700 million DIP financing during Chapter 11.

After Seabury’s appointment, discussion in Latvia was already moving toward much deeper restructuring. By early May, public analysis was explicitly examining Chapter 11 and the experience of SAS and other airlines as possible models for airBaltic.

That history shows that airBaltic entered the current process with people and advisers who had direct experience of airline restructuring. It does not tell us whether the process will succeed.

Other airlines, including SAS, have used Chapter 11 to continue operating while renegotiating debts, leases and financing. Their cases show that the mechanism can work. They do not provide a template that guarantees the same result for airBaltic.

The next stage will be visible in documents rather than announcements.

Court approval of the DIP facility should show what priority and security the new lenders receive and how the €350 million becomes available. The treatment of the 2029 bonds will show how losses and concessions are divided among secured creditors. Decisions on lease contracts will indicate what fleet airBaltic intends to operate after restructuring. Any debt-to-equity conversion or new equity financing will show what remains for existing shareholders, including the Latvian state and Lufthansa.

airBaltic says it intends to complete the Chapter 11 process around June 2027.

Until those terms are known, Chapter 11 provides a mechanism for keeping the company operating while its finances are rebuilt. It does not yet tell us what the final airline will look like — or who will ultimately bear the cost of getting it there.

Chapter 11 is not unique to airBaltic, although it is far from a routine path for airlines. A number of major carriers have used the procedure in different restructuring cycles, including United Airlines, Delta Air Lines, American Airlines, Avianca, LATAM and SAS. SAS entered Chapter 11 in July 2022 and emerged in August 2024 after restructuring debt, aircraft leases and ownership; LATAM exited its process in 2022, and Avianca in 2021. The precedent shows that an airline can continue operating while its finances are reorganised, but it also shows that the process can involve substantial changes to debt, fleet commitments and existing shareholder interests.