Latvia’s national airline airBaltic is seeking approval for a financing package of up to €257 million as it works to strengthen its liquidity and implement a revised business plan. The proposal, backed by Polus Capital Management and Klirmark Capital 4, will be put to bondholders for a vote on September 11, making the decision a crucial moment for the airline as it attempts to stabilize its finances and reshape its operations.
The proposed financing would provide airBaltic with much-needed short-term liquidity, but it comes at a significant cost. The new financing carries an annual interest rate of 25%, reflecting the high-risk and short-term nature of the transaction. According to the company, €180 million could become available after the necessary approvals and conditions are met, while an additional €77 million would be released later once further requirements are satisfied.
The financing would take the form of new, higher-priority bonds, giving the lenders stronger claims than existing creditors. The bonds are scheduled to mature on February 26, 2027, meaning airBaltic has only a limited period to use the funding effectively and demonstrate that its turnaround strategy can improve its financial position.
For bondholders, the decision presents a difficult calculation. Approving the financing would give airBaltic additional cash and potentially improve its ability to meet existing obligations. Rejecting the proposal, however, could leave the airline facing greater liquidity pressure at a time when access to alternative financing remains difficult.
The proposed 25% interest rate is one of the most significant features of the deal. Such a high borrowing cost would normally be a major concern for an airline operating with narrow margins and significant fixed expenses. airBaltic has indicated that the rate reflects the temporary nature of the financing and the current conditions in which the company is raising capital. Management has also argued that the financing provides the time necessary to carry out its restructuring plans.
The airline intends to use the funds primarily for liquidity requirements and existing financial obligations. This includes refinancing certain aircraft and engine-related liabilities as well as covering operating expenses such as aircraft maintenance, repairs and airport charges. The objective is not simply to raise additional money, but to ensure that airBaltic has enough financial flexibility to implement its new business strategy.
That strategy includes a significant reduction in the airline’s fleet. airBaltic currently operates 54 Airbus A220-300 aircraft, but the company plans to reduce the fleet to 36 aircraft by the end of 2026. It then expects the fleet to gradually grow to around 40 aircraft by 2031. The reduction is intended to bring capacity more closely in line with demand and reduce the financial burden associated with operating and maintaining a larger fleet.
The move highlights the broader challenge facing airBaltic. Like many airlines, the company must balance the need to control costs with the need to maintain enough capacity to serve important markets and support future growth. A smaller fleet could improve efficiency and reduce expenses, but it could also limit the airline’s ability to expand rapidly if demand strengthens.
The Latvian government remains closely involved in the situation because it owns 88.37% of airBaltic. Lufthansa holds a 10% stake, while the remaining shares are held by other investors. Latvia is also an existing bondholder and will have the opportunity to participate proportionally in the proposed new bond issue.
The financing is particularly important because airBaltic has faced difficulties accessing traditional capital markets. The company previously suspended its planned initial public offering after reviewing its financial performance and market conditions. As a result, an IPO is not currently expected to provide a significant source of funding for the airline in 2026.
airBaltic’s financial results show both progress and continuing challenges. The company reported revenue of €779.3 million in 2025, an increase of 4.2% from the previous year. Its net loss narrowed significantly to €44.3 million, while passenger numbers reached approximately 5.2 million. These figures indicate that the airline has made progress, but it remains unprofitable and therefore needs further improvements in its operations and financial structure.
The revised business plan is intended to address those weaknesses. Management wants to create a more efficient airline with a lower cost base and stronger financial independence. Chief Executive Erno Hilden has emphasized that the financing would provide the liquidity and time required to implement measures designed to strengthen the company.
The biggest question, however, is whether the plan can produce results quickly enough. The new bonds are due to mature in February 2027, leaving little room for delays. Even if airBaltic receives the full €257 million, the financing will not solve the company’s underlying challenges unless the money helps generate stronger cash flow and improve profitability.
The high interest rate makes execution even more important. Borrowing at 25% can provide valuable breathing room in the short term, but it can become an additional burden if the company’s financial performance does not improve. The financing therefore needs to function as a bridge toward a stronger business model rather than another layer of debt that postpones existing problems.
For airBaltic’s management, the next stage will involve reducing costs while maintaining operational reliability, adjusting fleet size, managing aircraft-related obligations and improving the airline’s ability to generate sustainable earnings. At the same time, the company must continue competing in a European aviation market where airlines face volatile fuel prices, changing passenger demand, intense competition and substantial capital requirements.
The September 11 bondholder vote will consequently be an important test of confidence in airBaltic’s turnaround strategy. Approval would give the airline access to significant short-term liquidity and allow management to proceed with its restructuring plans. But creditors will also be weighing the risks associated with the expensive financing and the short maturity of the new bonds.
The proposal ultimately gives airBaltic more time, but time alone will not fix its financial problems. The company must use the funding to reduce structural costs, improve efficiency and move toward profitability before the new debt becomes due. If management succeeds, the financing could provide the bridge needed to stabilize the airline and build a more sustainable business. If the turnaround falls short, the high cost of the new borrowing could leave airBaltic facing another difficult financial decision in the near future.
For now, the airline’s immediate objective is securing approval from its bondholders. The larger challenge is proving that the €257 million financing package can do more than keep the company flying—it must help put airBaltic on a financially sustainable path.
