Air Baltic creditors may lose most of their money

Air Baltic creditors could recover only a small portion of their claims as the Latvian airline seeks to restructure its debt under Chapter 11 bankruptcy protection in the United States, ERR reported. The value of its bonds has fallen by about 90 percent, meaning bondholders may receive little or nothing.

Tallinn Airport, the airport operator, ranks 18th among Air Baltic’s 30 largest non-bondholder creditors. The airline owes it $1.5 million.

Tallinn Airport board member Eero Pärgmäe said the airport and Air Baltic had reached an understanding on how the airline could continue making payments during the proceedings while the airport continued providing services.

“Chapter 11 is currently a very important process for Air Baltic. First, it gives the airline’s management the opportunity to continue its daily work on restructuring the airline,” Pärgmäe said.

He added that all current flights would operate and existing bookings would remain valid. Because the airline is under bankruptcy protection, he said passengers could also safely buy tickets for next year.

The restructuring is expected to last nine months. During the process, creditors’ claims may be reduced substantially. Debts will be prioritised, with the most recent €350 million in financing for maintaining operations and loans placed first.

“After that come various secured obligations,” investor and financial expert Valeria Kiisk said. Aircraft leases backed by physical assets would be secured, she said, while unsecured claims would include those of Tallinn Airport and bondholders.

“Shareholders are, of course, in the very last position. So I think there is no avoiding substantial dilution of ownership here,” Kiisk said.

Air Baltic bonds were available only to institutional investors, so there are few owners of them in Estonia. LHV chose not to buy the bonds, with LHV Varahaldus portfolio manager Martin Möllits describing the decision as deliberate.

“The bonds had already been on the market for years, and the company had also had problems for years, so we consciously did not invest in them,” Möllits said. “In light of the latest news, the decline from the principal value has been nearly 90 percent. Someone will certainly lose money; the question is who and how much.”

Air Baltic must continue its cost-cutting measures, while new investors could ultimately save the company, Kiisk said. She cited SAS as an example in which the business model survived but ownership did not.