Air Baltic Faces Financial Crisis, Plans to Cut Fleet by a Third

Latvian state-controlled airline Air Baltic is grappling with a severe financial crisis, prompting a drastic fleet reduction and an urgent search for emergency funding. The company's rescue plan, approved on August 11, involves cutting its fleet by approximately one-third, reducing the number of aircraft from 54 to 36 by year-end.

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The company's rescue plan involves cutting its fleet by approximately one-third, reducing the number of aircraft from 54 to 36 by the end of the year.

Air Baltic is actively pursuing a 325 million euro financing package from investors while simultaneously working to significantly devalue certain secured bonds. Creditors are set to vote on this rescue plan next Monday. Despite approving the plan, the Latvian government has stated it will not provide new budget funding at this stage, compelling Air Baltic to secure private investment and negotiate with creditors.

The airline's financial woes stem from multiple factors. Aggressive expansion in recent years, coupled with issues concerning Pratt & Whitney engines for its aircraft, led to thousands of flight cancellations. More recently, a sharp increase in fuel prices due to the war in Iran and regional instability heavily impacted Air Baltic. The airline had only hedged about six percent of its fuel needs for the next three months as of March, according to the Financial Times.

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The airline had only hedged about six percent of its fuel needs for the next three months as of March.

Adding to its challenges, Air Baltic faces increased competition from low-cost carriers like Wizz Air in the Baltic region. While the airline managed to increase its revenue by 12 percent to 149 million euros in January-March, its losses widened to 70.1 million euros from 29.3 million euros in the same period last year. High interest payments on a 380 million euro bond issued in 2024, amounting to approximately 55 million euros annually, further exacerbate its financial difficulties.

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Air Baltic pays 14.5 percent interest on a 380 million euro bond issued in 2024, which means about 55 million euros in annual interest expenses.