Romania’s largest airline, Blue Air, has been given a new lease on life after Bucharest’s municipal court approved its request to enter a form of bankruptcy protection. The concordat procedure allows the carrier to continue operations and generate revenue for the next 18 months without having to pay back creditors and refund passengers. The agreement between the airline and its creditors will see the airline repay loans in full at a later date.
A concordat agreement
Today, a judge approved a new plan for the struggling airline which will give it 18 months to restructure and generate revenues. A concordat agreement is based on the principle of mutual benefit. The airline’s creditors will benefit more from a late repayment of a loan rather than the airline going bankrupt. The procedure will allow the airline to focus its spending on areas that will enable it to operate as normally as possible.
This focus means the airline does not have to pay back any existing debts immediately. By prioritizing costs in this way, the aim is for the airline to generate enough revenue so that in 18 months, it will be able to pay back creditors without entering into insolvency. In a statement CEO Oana Petrescu said,
“We, at Blue Air, are determined to honor all our commitments and pay all our debts. We are relying on the support of our partners and on the trust and mutual respect we have built
throughout our collaboration and we are taking all necessary steps to continue to operate”.
Slowly resuming operations
Like many European Airlines, Blue Air has struggled massively to cope with the financial impact of COVID-19. Blue Air suspended operations, grounded its fleet, and 90% of the airlines’ staff were classified as unemployed in April. However, things have started to turn around for the airline. In June, due to demand from passengers, the airline started operating on-demand flights, and from July 1st, the airline resumed a more regular schedule.
The airline started by reintroducing a small network of 29 destinations. There are plans to extend this to almost 50 destinations once more restrictions lift on July 16th. Before the lockdown, Blue Air operated flights to 100 destinations in 20 countries and was looking to expand its network by launching new routes this summer.
Before the virus outbreak, Blue Air was fast becoming a success. The airline has a unified fleet of 18 Boeing 737s. Since 2004, the airline has carried over 30 million passengers. The airline’s success is partially due to its low fares. Romania has a lower average income than other European countries, so the airline’s cheap seats mean it is accessible.
Blue Air’s financial situation
The airline also got much-needed financial relief when SIF Banat-Crisana agreed to a three-month extension of the maturity of bonds it acquired in December 2019. The investment fund bought 90 bonds for €8.9 million ($10 million), and they were due to mature on June 15th.
However, from March to June, Blue Air’s revenues declined by over €100 million ($113 million) due to the COVID-19 outbreak. In April, the Romanian government announced it had approved €130 million ($147 million) to help Blue Air and state-owned carrier TAROM. It is unclear how the money was split between the two airlines.
The government loan and the new concordat procedure should give the airline enough support to make it through this uncertain period. The carrier has avoided insolvency so far, but with a potential second wave of the virus, it still faces uncertainty. Do you think the airline has enough support to make it through? Or is this new legal procedure just one step before bankruptcy? Let us know your thoughts in the comments.
