Fitch: AirBaltic's Future Uncertain if Stakeholders Reject Funding Plan
AirBaltic's Funding Crisis and Stakeholder Decisions
By Andrius Sytas
Immediate Funding Needs and Stakeholder Approval
VILNIUS, Sept 11 (Reuters) - AirBaltic's options are "quite limited" if stakeholders do not approve external funding, Fitch Ratings told Reuters on Friday, estimating the Latvian airline needs €156 million ($180.80 million) in funding to keep operating in the short term.
The carrier, which is majority owned by the Latvian state, has said it is seeking financing from bondholders as it races to avert the risk of default.
Bondholder Meeting and Funding Plan
AirBaltic had asked bondholders to approve a plan on Friday to raise up to €257 million through new super-senior debt due in February 2027. Late on Thursday it said it had rescheduled the meeting until 1200 GMT on Tuesday "to allow bondholders additional time to review the draft resolution and submit their voting instructions in a timely manner".
"Getting approval for this funding from involved stakeholders is critical," Fitch Ratings' corporate ratings director Raman Singla said.
Background: Financial Pressures and Industry Challenges
Impact of Jet Fuel Prices and the Iran War
AirBaltic first signalled major financial pressure in March after its jet fuel bill surged in the wake of the Iran war.
Its problems highlight the difficulty weaker airlines face to pass on higher costs from soaring jet fuel prices caused by the war.
Bond Structure and Repayment Priorities
The new bonds would take priority for repayment from collateral — which includes eight aircraft and seven engines — while notes due in 2029 would fall to third priority, which analysts said could be behind a spike in yields this week. The second priority would be uptiered bonds whereby existing bondholders exchange into the new senior tranche.
Long-Term Funding and Business Sustainability
If the new short-term debt is issued, it will need to be replaced by a long-term funding mix to make it sustainable for the business, said Singla.
"However, if long-term funding is implemented in due course, along with the fleet reduction, it could be a strong enabler for long-term survivability," he said.
Potential for Investor Takeover
Latvian Prime Minister told Reuters in July that the government is talking to an investor to take over the troubled carrier, and Singla said airBaltic "could be a good business proposition with a sustainable capital structure and growth plan"
Fleet and Bond Constraints
airBaltic's all-leased aircraft fleet along with a high coupon bond severely limited its ability to generate cash and fund its earlier growth plan to reach 100 aircraft, said Singla.
Market Reaction
Yield Falls
YIELD FALLS
The yield on airBaltic's €380 million notes due in 2029 fell sharply on Friday, following a rise on Wednesday when the bond prices dropped to record lows.
The yield has jumped more than 20-fold this year, reflecting higher perceived risk.
Investor Response
Polus Capital, the credit fund committing to at least half of the new issue that will be voted on Tuesday, declined to comment.
($1 = 0.8628 euros)
(Reporting by Andrius Sytas in Vilnius, Gianluca Lo Nostro in Gdansk; Editing by Terje Solsvik, Mark Potter, Milla Nissi-Prussak and Susan Fenton)