Image: Romain COUPY · CC BY-SA 4.0 · via Wikimedia Commons
Air Baltic to scale back A220 fleet to around 40 aircraft in strategic overhaul
Latvian airline Air Baltic revises its fleet plan from 54 to about 40 Airbus A220-300s amid a €225 million recapitalisation and shifting market conditions.
The gist
Air Baltic cuts A220 fleet to about 40 and secures €225m interim funds, prioritizing financial stability over growth amid market challenges.
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Latvia's Air Baltic is undergoing a strategic transformation, announcing plans to reduce its Airbus A220-300 fleet from 54 to approximately 40 aircraft. This adjustment accompanies a significant interim recapitalisation effort amounting to €225 million designed to bolster the airline's liquidity and support its revised long-term business plan. The carrier expects its fleet size to decrease to 36 by the end of the current year before stabilizing near 41 aircraft by 2031.
This shift marks a departure from Air Baltic's previous ambitions, which anticipated expanding the fleet to around 100 aircraft, leveraging strong passenger growth and revenue increases in the Baltic region and across Europe. The earlier plan was developed with an initial public offering (IPO) in mind to fund such expansion. However, due to evolving market realities, those plans have been reconsidered.
Several external factors have influenced Air Baltic's decision to scale back. The airline cited moderated market demand, slower revenue growth, and geopolitical tensions surrounding Ukraine and the Middle East as contributing to a less favorable environment. Compounding these challenges are technical difficulties involving Pratt & Whitney GTF engines powering the A220 fleet, which have hampered the airline's capacity to fully utilize its aircraft.
Air Baltic's new approach shifts focus away from broad expansion toward strengthening financial stability first, followed by growth. The comprehensive plan aligns the airline's network, fleet size, cost structure, and capital resources with current market conditions. Air Baltic secured parliamentary approval for a short-term €30 million state loan earlier this year to support liquidity measures amid these operational adjustments.
Under new leadership since December last year, CEO Erno Hilden emphasized the importance of adaptability, stating that Air Baltic must make disciplined choices to maintain reliable connectivity and financial sustainability. The airline plans to concentrate operations at its Riga hub, prioritizing increased frequencies and enhanced service on routes demonstrating the strongest demand and profitability.
Additionally, Air Baltic intends to supplement its network with selective point-to-point and seasonal routes to optimize aircraft utilization. While it foresees a decline in scheduled capacity initially, the airline anticipates surpassing current capacity levels by 2031 thanks to a more focused and sustainable network strategy. Enhancing partnerships, particularly in aircraft, crew, maintenance, and insurance (ACMI) services, forms a key part of its profitability drive.
The airline projects that these strategic adjustments will yield €45 million annually in recurring cost savings. The recapitalisation plan involves €225 million in interim financing to bridge Air Baltic toward a permanent financing solution, contingent on bondholder consents and regulatory approvals. The longer-term financing framework envisions up to €225 million in new debt and €100 million in equity capital to underpin future growth.
Financial forecasts based on the revised plan indicate that Air Baltic expects revenues to reach approximately €800 million this year, growing to €1 billion by 2031. Earnings before interest, taxes, depreciation, amortisation, and rent (EBITDAR) are projected to increase from €192 million in the coming year to €300 million over the next decade, reflecting improved cost controls and strategic alignment.
Frequently asked questions
- What changes is Air Baltic making to its Airbus A220-300 fleet?
- Air Baltic is reducing its Airbus A220-300 fleet from 54 aircraft to about 40, aiming for 36 by the end of the current year and around 41 by 2031.
- Why is Air Baltic scaling back its growth plans?
- The airline cites moderated demand, slower revenue growth, geopolitical issues in Ukraine and the Middle East, and Pratt & Whitney engine problems limiting fleet deployment as reasons for revising growth expectations.
- How is Air Baltic addressing its financial position amid these changes?
- Air Baltic is implementing a €225 million interim recapitalisation to improve liquidity, backed by a state loan and plans for new debt and equity financing to secure financial stability before resuming growth.
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