RIGA, Latvia: Latvia's airBaltic has voluntarily filed for Chapter 11 bankruptcy protection in New York as it seeks to restructure its debt and remain in operation amid a worsening aviation industry crisis linked to the U.S. war with Iran.

The airline has secured a commitment of 350 million euros (US$405 million) in financing from lenders, including Strategic Value Partners, Barclays, Hayfin Capital Management, Morgan Stanley, and Oaktree Capital Management, to support operations during the restructuring.

The financing, carrying an interest rate of about 12 percent, requires court approval, airBaltic CEO Erno Hilden told a press conference.

"In the coming months we will engage with all our stakeholders to agree on sustainable terms," Hilden said, adding that the company is seeking 44 million euros in annual profit improvements.

AirBaltic plans to use the bankruptcy process to cancel or defer outstanding deliveries under a $3.5 billion order for 40 additional Airbus aircraft and $106.7 million of additional Pratt & Whitney aircraft engines, according to a court filing. The airline said it had already engaged with Airbus to defer further deliveries after this year.

Pratt & Whitney's owner, RTX, declined to comment, while Airbus did not immediately respond to a request for comment.

Flights will continue as scheduled during the court-supervised restructuring, which airBaltic expects to complete by June next year.

The U.S. war with Iran has caused jet fuel prices to double, triggering the air travel industry's worst crisis since the COVID-19 pandemic. Investors and executives have warned that airlines with stretched balance sheets risk collapse.

"AirBaltic has been experiencing acute financial stress due to a combination of financial and geopolitical factors," the airline's board said in a bankruptcy court filing.

AirBaltic has about $583 million in funded debt and finance lease liabilities, and owes 106 million euros in payroll taxes, airline taxes, and fees. Its revenue in 2025 was about 779 million euros.

Hilden said airBaltic was discussing "[an adjustment] in the workforce" with labor unions, describing it as a natural consequence of existing capacity reduction plans. The carrier employs more than 3,000 people after expanding its global workforce over the past decade.

"I do think that the underlying business for airBaltic is a very healthy one. So, after we really execute on our new business plan, I do see a bright future for the company," Hilden said.

The biggest operational changes during restructuring would involve reducing airBaltic's wet lease business, which provides aircraft and crews to other airlines for a fee.

AirBaltic operates about 50 Airbus A220-300 aircraft and is majority-owned by the Latvian government. Lufthansa holds a 10 percent minority stake.

Before the bankruptcy filing, bondholders were due to vote on a plan to raise up to 257 million euros in new super-senior debt, due in February 2027 at a 25 percent interest rate.

Latvian Prime Minister Andris Kulbergs said Chapter 11 proceedings began after bondholders representing more than 70 percent of the debt's value opted for liquidation instead.

"I view this solution as one of the best options for ensuring airBaltic's viability, as it provides the necessary tools and time to implement the restructuring plan," Kulbergs said.

The government continues to seek a strategic investor while airBaltic reduces its fleet and reorganizes its obligations.

AirBaltic is the second airline casualty linked to the war in Iran, after Spirit Airlines collapsed in May. Spirit had filed for bankruptcy months before the conflict began in late February and later failed to secure creditor support for a government bailout plan. AirAsia is among other airlines seeking fresh capital.

Hilden previously led Scandinavian airline SAS through Chapter 11 proceedings between 2022 and 2024 and said airBaltic is "targeting (the) same process".

"This gives them a protective framework to put their house in order ... I don't see why airBaltic wouldn't do the same as SAS," analyst John Strickland said.

AirBaltic had planned to expand its fleet to 100 aircraft. Aviation analyst Simonas Bartkus said it had expected to develop transit traffic from Russia, Belarus and Ukraine through Riga.

"This is no longer available, and the company became too large for its market ... The rise in fuel costs made the situation acute; they had no time to find a solution," he said.

Kulbergs said airBaltic had "burned through" 380 million euros raised through bonds issued in 2024 by April, while a 30-million-euro emergency government loan ran out in June.

"Serving Baltic and Latvian routes requires only 30 aircraft, not 100," he said.