2026.09.23 | GP | Airlines | airBaltic Restructuring

11 Filings Achieve a Viable Airline at Emergence?

Primary:

Air Baltic Corporation AS

Associated:

WIZZ:LN

EZJ:LN

SmartLynx Airlines SIA

NAS:NO

Viewpoint:

Competitor

Moderator: David Farrar (DF)

| Sep 23, 2026 | 38 Min Read

Aleksandrs Gusevs (AG), Chief Commercial Officer - Fly2Sky Airlines

SU MMARY

Overview

The discussion focuses on airBaltic's operational restructuring plan and its initial Chapter 11 filing. The expert, an experienced aviation executive, provides insights into the company's strategy to achieve viability and emerge successfully from financial distress. The conversation covers airBaltic's network restructuring, fleet adjustments, and strategic partnerships, particularly with the Lufthansa Group.

Key Insights

The expert emphasizes the strategic importance of airBaltic as a national carrier for the Latvian government, despite its ongoing financial challenges. The restructuring plan includes significant reductions in routes and fleet size, with a focus on maintaining profitable operations and leveraging ACMI (Aircraft, Crew, Maintenance, and Insurance) agreements, particularly with Lufthansa. The expert suggests that airBaltic's shift towards ACMI operations is a positive move, as it offers a more stable revenue stream compared to regular passenger services in the Baltic region. There is skepticism about the profitability of airBaltic's current aircraft fleet, particularly the A220-300s, given the market's paying capacity and competition from low-cost carriers like Ryanair and Wizz Air.

Competitive Landscape

Company/Entity

Positive Aspects

Negative Aspects

Market Position

airBaltic

Ryanair

Wizz Air

Strategic national asset, ACMI agreements with Lufthansa

Financial struggles, unprofitable routes, high operational costs

Restructuring to focus on profitable ACMI operations

Strong market presence, competitive pricing

Aggressive competition

Poised to fill gaps left by airBaltic's restructuring

Low-cost operations, expanding market share

Similar competitive pressures as Ryanair

Potential to capture market share in the Baltics

Lufthansa Group

Strategic partnership with airBaltic, multi-year ACMI agreements

Seasonal dependency on ACMI operations

Strong partner for airBaltic's ACMI strategy

Quantitative Insights

Metric/Aspect

Insight

Fleet Size

Reduction from 54 to 36 aircraft planned

ACMI Operations

Expected to account for 60-70% of airBaltic's fleet usage

Financial Support

$300 million DIP financing secured in Chapter 11 filing

Market Pricing

airBaltic's ticket prices higher than competitors, impacting demand

The expert's analysis suggests that airBaltic's future viability hinges on its ability to streamline operations, focus on profitable routes, and maximize its ACMI agreements, particularly with Lufthansa. The competitive landscape remains challenging, with low-cost carriers ready to capitalize on any market gaps.

DF: Good morning, everyone. Welcome to our rescheduled call today. My name is David Farrar. I'm a moderator and senior credit analyst with Guidepoint Insights. Welcome to our call on airBaltic and the operational restructuring plan and the company's initial Chapter 11 filing to achieve a viable airline and emergence with our advisor today, Aleks Gusevs. If you have a client on the call, you do have an opportunity to ask questions by emailing ask@guidepoint.com, and those questions will make their way to me and I'll be able to incorporate them. Before we proceed, I want to give Aleks a couple minutes to talk about his background and career. Aleks, please go ahead.

AG: Yes, hello, I'm Aleksandrs Gusevs, currently holding position of Chief Commercial Officer at Flight2Sky, but I'm already in aviation for more than 20 years, being fulfilling such positions as operations manager and director, and since 10 years ago, I'm operating as a Chief Commercial Officer, basically responsible for the revenue of the airlines, specifically ACMI. I'm from Latvia, so airBaltic is something close and near to me, so I can discuss the topic about them definitely. I've been spending 6 years of my career as a chief commercial officer in SmartLynx, which has been based in Latvia previously. Currently, as I mentioned before, I'm a Flight2Sky Chief Commercial Officer, and I had several transactions with airBaltic previously on the ACMI basis. So it's shortly about myself.

DF: Okay. Thank you. I appreciate it. So why don't we start off with how you're seeing the company restructure their network because what they said in the filing was that they were going to be cutting back significantly on routes and obviously aircraft. But I'm curious, what you're seeing actually been implemented and how that's impacting the region, if at all, for that matter?

AG: Yeah, first of all, airBaltic is a national carrier, as you know, and it's like a strategic asset for the government, the Latvian government itself. The only thing is that there are no really good signs in the government that the company will start to earn positive cash flow. This is why it is going on like that. Taking into account elections which will be going on in the beginning of October, nobody wants to take unpopular decisions, and the company really needs some kind of new business plan and structure for the government to take a decision on investing more financing to this organization. Normally, the plan was to have... currently we do have 54 aircraft and it was planned also to have an order of 50 aircraft which basically do not have a real business plan in the area of operation of airBaltic in the Baltic states. There is no paying capability there; therefore, it will now be reconsidered to be decreased to 36 aircraft and this is a good strategy, by the way. The only thing is that lessors which are already on the contract with airBaltic probably would have some kind of concerns, taking into account that the market is not really good at this stage. So it

would be a really challenging period for them. If you are asking about how it would impact such a kind of decrease from the airBaltic side, I would say it should not be significant exposure on the Baltic states itself because, as you know, the competitors are not sleeping. They are really waiting for a reduction in airBaltic size to increase their... to step into this market specifically. Ryanair, as you know, similarly with Wizz Air and probably Norwegian as well. So, as per my point of view, this is healthier for airBaltic right now to make a decrease. It is a good intention. However, how we will manage that during the short period of time, it is still a question. But in any case, the competitors will be ready to jump into the market. And I know that airports are aware of that and they are already in preparation with several low-cost carriers to fill the gaps for that specific airline. And another thing is that even 36 aircraft is more than enough for the market, for this specific market. And this is why the probability is that a major part of this will go definitely and serve Lufthansa Group on an ACMI basis, leaving some smaller part, filling the gap of the Baltic state operation.

DF: So let's talk about the ACMI side and Lufthansa relationship, because Lufthansa had a small equity stake in the business, and the goal is to keep them engaged on the equity side, and the ownership side. But does the ACMI work that they're doing with times, is that a year-round opportunity or is that really just off-season? You know, a business that the company is getting.

AG: Yeah, as far as I know, this is a multi-year arrangement between airBaltic and Lufthansa group, but only for the summer season operation, starting from the end of March until end of October. This is why we are really struggling specifically in the wintertime because of the low season. But it's also from another perspective, it's also the profitable part of this operation. So as many aircraft being deployed into the Lufthansa setup as more profitable company, airBaltic might be. So if we are splitting the businesses itself, then ACMI with a high probability has a positive P&L. But unfortunately, the Baltic States part, you know, regular operating flights are on the negative side. You know probably that airBaltic opened the daughter company in Austria or Switzerland, probably, and I see here some kind of sign that it was done with some kind of pressure from the Lufthansa group to divide 2 entities or to make it 2 entities, 1 ACMI entity and another one airBaltic regular carriage, so and it might be the case that Lufthansa group will be interested to have a major part of this daughter company in Switzerland.

DF: Yeah, just it would make sense if they moved their equity stake or funding into a dedicated ACMI business, obviously not based in Latvia. So, you know, as far as the, I think the 34, 36 aircraft that they're targeting, retaining, how many of those, just given the demand in the Baltics, would you say are probably truly sort of dedicated ACMI? Or how much do you think the company really can support in the Baltics?

AG: Yeah, it's already currently more than 20 aircraft is flying on ACMI basis with the Lufthansa Group. So I would assume we want to increase this capacity. And my personal point of view for the... nobody still see the business plan which management created for the government to be able to proceed with such. But as per my point of view, there will be majority of the aircraft, I think 60% to 70% will be flying on the ACMI basis. And then all the remaining fleet, around 30% would be dedicated for Riga base. I think the next step of them would be completely move away from Vilnius and Tallinn because this creates some inefficiency for them and they would stay in Riga probably only. And they will be operating something like 10, maybe 15 aircrafts in the base, Riga base, because it's still strategic... this is really still a strategic asset for the government to have the national carrier. But majority of the aircraft will be anyway deployed on ACMI basis and you can see the recent news as I was saying that in the wintertime we want to place aircraft even in Papua New Guinea, so that means it's also understandable because in reality in the wintertime we do not need so much capacity, we would need to somehow diversify their business and try to step into something different. They already operate their Serbia all year around operation, it's a good business, but we will be like a competitor for any ACMI providers as well over the world trying to place their capacity in different regions just to be afloat but in reality to have strong P&L you have to maximize your ACMI capacity instead of being a regular carrier, specifically having such kind of competitors as Ryanair, Wizz Air, Norwegian flying constantly in the Baltic states with this huge pressure on the ticket price and so on. For them it's really something which is hitting them a lot.

DF: Yeah. So the company has said that Riga has become a major sort of connection point, right, to transfer traffic. Does that still make sense if the company has cut back the total number of flights between Tallinn and Vilnius and other Eastern European locations? Does it still make sense for Riga to maintain that level of transfer traffic or is that likely to go away and it is likely to return to you know a sort of more traditional domestic or local or originating flights in volume?

AG: You know, it was the same period in Estonia and Lithuania where they had national carriers, they went out from that specific thing with the same result because of the passenger flows. There are not so many passengers in the Baltic states to be able to carry such volume with so many aircrafts and this is why, and with the current competition, it is really something which will be not achievable. So just to save the company, as I mentioned, they would need to keep the only profitable routes in Riga airport. Maybe they would leave something in Vilnius and Tallinn, maybe 1 aircraft or whatever just to still keep going with the really revenue generated routes. But the majority, full majority will be of the capacity, of the fleet capacity, which will be staying on the regular carrier routes, it would be in Riga definitely. But as I mentioned before, there will not be so many aircrafts. They would cut definitely any unprofitable routes. They would leave only routes which are making some sense for them to operate.

DF: So, you know, as far as those routes go, are there any particular locations that are organically profitable out of Riga, whether it is into the Nordics or Germany or Turkey or wherever? What routes do you see as the primary demand drivers or the ones that are like crazy that they set up that don't make any sense?

AG: Yeah. I would say we definitely will take the portion of the full charter operation. It's not like their full charter operation, but we are having agreements with the tour operators, specifically Tez Tour. They will definitely continue this operation because it's still a profitable part of the operation. Then definitely all the European routes like Brussels, Amsterdam, all such kind of hubs would definitely keep it because the load shows that it would definitely still be in demand. Moreover, there is not so much competition in that specific area. We will just control what is the competition on the specific routes and what is the load and I will proceed with that. But definitely we would cancel everything what is going to the Middle East or Israel or something like that, taking into account the current situation there. And we will definitely remove all these flights which are secondary for them which may have been increasing in the previous year. I think Finland will be definitely removed as a base because, you know, we've been placing 1 or 2 aircraft there. We also had a plan to place aircraft in Canary Islands for some kind of part of the period flying to Europe. I think this one will be cancelled as well because of the higher competition on the EasyJet and Ryanair. So I think it will be more regional operation to the capital, mostly capitals or some airports in cities, which is multimillion cities.

DF: Okay. So as far as pricing in the region, the company managed to be unhedged for this year, at about 90%, which explains a lot of why they're having liquidity and profitability issues. But is the market pricing and demand adequate to generate profitability on a re-hedged basis for 27, or is there an issue looking forward to 27, even given the relatively higher hedge rates? And I guess the way I'm backwardly asking that is, you know, do our ticket prices for competitors who have been hedged, are they likely to align with the new hedges next year, or is that likely to drive a significant demand decline if prices have to move up significantly?

AG: At this stage it's very difficult to predict what would happen with the fuel. Now fuel prices are really high. If you will start now to hedge the price for DF: Yeah.

AG: The next year, I think the prices will be high. Now everyone, all the companies will be taking their part and strategy how we want to do that. If you're speaking about, for example, large organizations, they probably will have some kind of discount approach on the hedging as well. But taking into account uncertainty with the Middle East region, and everyone has been thinking that this conflict will not be more than 1 month, at least, because similarly what was between Iran and Israel last year, for example, or whatever. But it's still progressing. There is a more difficult

situation going on not only Hormuz, but also another 1 strike, which is Bab-el-Mandeb strike, which is taking over by Houthis right now. It's all this is basically making the market to be shaky. All the competitors, they've been hedging fuel prices on 80% and 90%. And in November, probably everyone will start to get this heat, because we will be using all the cheap fuel from the contracts and then it would be a really difficult period, not only for airBaltic, it will be a difficult period for everyone. And we will see probably soon a significant increase on the prices. If you're asking me in regards to the comparison of the ticket prices in between airBaltic, for example, and their main competitors like Ryanair or Wizz Air or whatever, airBaltic is still on the higher side. But in any case, if you look into the prices itself, I do not really understand how we may be profitable on that because the prices are really low and it's driven by the competitors at this stage. So if you're asking me, what about future?

DF: Well, I think this is... look, the type of people who are flying out of or into the Baltics on airBaltic and competitors, is it more of a business-oriented flight where you're more willing to absorb the cost, or is it more friends and family or leisure travel where you're going to be much more sensitive to a price increase? Right, I mean, if everybody's hedges roll off in November, you're going to see a spike in AG: Yeah, I will tell you 1 thing. There is part of the airBaltic which is operating in the leisure destination, specifically what I mentioned before with the tour operators, and then it's basically filled in by the tour operators mostly and some portion by the airBaltic itself selling the ticket. But normally airBaltic is taken for the business travels, not really for any other segment. And what is really good as well there is that there is at this stage good connections, direct connections to Europe in between Riga to Europe. If you are asking me if they would be able during this winter to survive without injections, I will tell you no, definitely not. We need an injection from the investor or government to be able to overpass the winter because winter will be very difficult not only for them but for everyone.

DF: You know, that comes to the, I mean, they have a DIP, right? So they have some liquidity, right? A $300 million DIP that they got from in the Chapter 11. But I think the biggest sort of variable which you brought up was the election. In Latvia, can you just walk us through for the uninitiated who aren't there how the election or when different parties could impact the willingness to fund the business or how they might change, you know, after the election?

AG: Okay. This is all my personal opinion. There is nothing which is crystal clear here or whatever, but it's not the first time. It's not the first time. airBaltic by itself is non-profitable already for the many years in a row and the government has been injecting into the airBaltic many times. It's at this stage a very unpopular topic because the people and citizens in Latvia, they are negatively looking into the injecting again taxpayer money to the airline which never been profitable in the past year. So now all the parties, they do not want to take any unpopular decision to have some kind of impact on the result of the elections. So at this stage, everyone is trying to hold it until the 3rd of October. And then starting from the beginning of October, it will be really fast reaction on investing into, injecting into the airBaltic again. Because once again, I want to, this is a very important thing for the government of Latvia. The airBaltic is the strategic asset, and strategic asset is something what they want to keep control of. And they would definitely will try to keep this image that Latvia, for example, is the state of aviation in Baltic states. So my opinion is that nothing would happen until the 3rd of October. There are no any decisions, but immediately after the election, I think it would be really... any fast reaction from the new parties, new coalitions to make some kind of injection, additional injection to their airBaltic.

DF: The company is invested, obviously, in this 220 fleet, right? 220-300s. Is... how do you see that aircraft demand in Europe? Because the original strategy for that aircraft was very much around sort of a little bit shorter route, high fuel efficiency. They've had the issues with the engines, obviously, but do you see that as the right aircraft for airBaltic as a national carrier? To continue to be the right aircraft or do you think that they would be better off if there was, you know, if they were in the 320 or if they were maybe operating different size or fuel efficient types of aircraft?

AG: I would tell, first of all, the aircraft is very good. The aircraft itself is very good. It's fuel efficient. It's very comfortable. It's like a luxurious car in the area of the airline, in the mid-size regular aircraft. But the main problem here is the cost. Cost and a number of seats on the aircraft itself. So, it's very difficult with such kind of seat

configuration to reach profitability. It's my point of view, my opinion, that there needs to be 2 strategies: to have a bit lower aircraft capacity, which is a bit cheaper than this specific aircraft like Embraers or whatever, or to move into the A320 segment, flying some kind of flights there with the 180 capacity. But it's only my opinion on that. My opinion is that this specific aircraft for that specific market, Baltic states, with this paying capabilities, with the really below average paying capability of the citizens, it would be very difficult to compete to cover the cost of the aircraft. Specifically, all the aircraft are dry leased, so that means I'm not sure what kind of dry lease monthly fee we are paying, but I think it's significant. It will be very difficult for them to survive with this aircraft and this is why probably this is not probably but definitely their strategy shifted more to ACMI because you can with the ACMI product you can cover your fixed cost and variable cost plus to get some kind of profit on top of it. The rest part, so the main, in my opinion here with this new business plan of airBaltic is that the ACMI portion of the fleet would be covering losses of the regular operation in the Baltics and then they may, with the smallest number of fleet, they may enter into the positive P&L.

DF: So, yeah, go ahead.

AG: You're asking me if this is correct aircraft for company to operate regular flights in the Baltic States, I think it's too expensive for airBaltic to cover their costs flying this specific route in this specific region.

DF: Do you think that applies more to the low-cost seats that they've been filling, or is it more on the business side? I mean, you could expand, because they have been running sort of a dual strategy. They referenced it, right, where they are trying to run both, but it sounds like going back to the business strategy is more the future.

AG: Yeah, it's okay, but probably the aircraft itself is not cost-wise, is not really something where the airBaltic would need to think. In creating the regular operation strategy, because it's very expensive for them. They cannot cover the cost of that.

DF: Gotcha.

AG: It's very expensive. It's very expensive for them. They cannot cover the cost of that.

DF: Given the route length and frequency and demand rate, the goal has been to upsize the number of seats, cut back on the total number of cycles, and at least where the US airlines have been going. It sounds like that's not a very good plan given out of the Baltics.

AG: Yeah, yes, correct.

DF: So on the sort of ancillary revenue side and coming out of the Baltics here, what's the opportunity for, you know, upgrade fees, Wi-Fi, check baggage? How does that exist from your point of view in this market? They referenced only 32% of the flyers are in their program, their loyalty program. So I'm just curious, you know, whether or not that's an option in terms of increasing revenue.

AG: They are already optimizing everything. Believe me, I'm using airBaltic frequently because I'm living by myself in Stockholm and I'm often going to Riga as well. And I know they are optimizing everything. They are controlling heavily kilos in your baggage on the check-in and on the entrance to the aircraft. They are doing everything. So we are already maximizing all the possible ancillary revenues from that specific flight. So how the internet is impacting, or Starlink is impacting, the increase on the passenger flow, I don't believe it's making any significant difference. With that, it is like an image, because when you're flying a 1 or 2 or 2 and a half hours flight, you can manage without internet as well. It's obviously, if people, specifically in the Baltic states, they are looking, not only to the internet capabilities, but we are looking on the cheaper option to get from point A to point B. So it might be a good source in

case if you are flying wide-body operations from Riga to the US or Asia or whatever, but having regional operation is not really something which is significantly impacting the revenue. Exactly.

DF: Right. I mean, not to mention if you're pulling back the longer-haul flights to the Canaries or these sort of vacation destinations, that's going to pull that number down as well, right? I mean...

AG: It might be, but I think it's more Gauss image thing because he's been trying to somehow advertise the company itself. But believe me, in current environment in the Baltic states, everyone is looking mostly on the price of the ticket and price of the ticket is not favorable to airBaltic as well.

DF: Okay. Obviously, they've been trying to grow quite a bit. So that raises the question of... have been aggressively spending on marketing and promotions. How aggressive is the marketing and promotion campaign and around where they've been spending? And I ask this in the context of sort of how much could they be pulling that back to eliminate costs or have they already made those cuts given the challenges they face this year?

AG: In regards to marketing, they are pretty aggressive. They are making, creating a lot of some kind of bonuses and also some kind of PR campaigns, specifically... lower... low price or whatever, something like that. But in reality, even if you are looking into the prices with some kind of discounts made by the marketing and so on, it's anyway higher, the price is higher when there are competitors. There are not so many people in the Baltic states, once again, it's... a bit less than 2 million in Riga, for example, and people know what kind of options they have to fly to their destinations. And airBaltic knows this as well, so they are doing very, very well on the marketing side. But I don't believe some more additional... investment in marketing would be able to change the current situation.

DF: Yeah, so it sounds like they would certainly be able to cut that back down, at least in some measure.

AG: Yeah, this is... Gauss started this, and I think it was a good direction what Gauss started with this ACMI option. Without, believe me, if there would not be an ACMI option with Lufthansa or Air Serbia or anybody else, then I think we would not see our airBaltic already a few years ago. It's basically the good shift. But the main point here, and which is difficult to take by the government of Latvia as well, is that it was realized very late, from my point of view.

DF: Right. So is there just one more thing on that other side? A lot of the Western airlines have focused very heavily. And some people say that they basically make money on credit cards, loyalty programs, and break even on the flights, which isn't totally accurate. But as the credit card loyalty program for airBaltic or others, how relevant are they versus, say, a larger European carrier, United or Lufthansa, British Airways, KLM? I mean, are people... Is there a market for the credit cards loyalty programs in the Baltic or is that pretty much tapped out?

AG: I really don't know about that. I don't think they do have such kind of marketing specifically on the credit card marketing, but I didn't see any such kind of marketing program from their side.

DF: Yeah. And it doesn't sound like many others have a similar program, right? Competitors or even... hotels or any other sort of AG: Yeah, they do have as well an option to book the hotels, you know, some kind of transfer, cars and so on. We are offering such kinds of services, but I'm not really sure that it's somehow... attracting the passengers. Once again, there is not so many people who is flying first of all out of Baltic states on constant basis, but everyone who is flying, they know exactly where to find the better option for them, and it's mostly... it's not within the, you know, airBaltic site.

DF: Back to the sort of ACMI, given the current environment, why would you or would you expect that the number of A220s that are in demand for ACMI would drop? I mean, could you see that revenue and that demand falling as well this year or potentially, you know, as long as oil fuel prices remain quite high?

AG: This is a good question as well. But, you know, this year, 2026, was a really correcting year for everyone on the ACMI market because there was no demand initially, but after the Middle East crisis, you know, for customers it has become very challenging to take ACMI capacity. It's extra cost for them plus additional fuel. So, majority, if you look into the news and so on, majority is just cutting the routes, cutting on profitable basis, cutting everything just to minimize the impact on the losses potentially companies might have during this year. So, of course, everything depends from next year development, this year and next year development in the Middle East, because it cannot be forever, definitely. It should be some kind of ending point, some kind of end to this war in Iran. But DF: Hmm AG: As far as I know, airBaltic do have multi-year agreements with Lufthansa with the option to keep some kind of volume within Lufthansa Group. And in any case, Lufthansa Group strategy is to not to have a risk on the low season. So for them, it's very difficult and unprofitable to keep the assets all year around with some kind of extra cost during the winter time and the half of the fleet will be standing on ground. So it's much more safe for them and risk saving exercise too. To have partners for the peak months, airBaltic would be the fantastic partners to partner with. With the new aircraft, with the fuel-efficient aircraft and so on, so in my opinion, it might be some kind of... For the next year it might be something, maybe a small reduction on the airBaltic fleet within Lufthansa Group, but I think it would be rather the same number of aircraft or maybe with some small correction, which will not be significant. I think Lufthansa Group is already invested into airBaltic and airBaltic is a part of their strategy. So we would be keeping this volume with them. Whatever the fuel cost will be due to the Middle East, because the aircraft itself, if you look at it performance-wise, it's even much better than the Lufthansa Group aircraft on fuel consumption. So I think we would stay with what is written in the agreement and in case the Middle East crisis will pass and oil prices will go back to normal, I think there would be even more requirements for Lufthansa to take more capacity from airBaltic.

DF: What about other airlines? Do you see the opportunity for the A220 to get more ACMI business?

AG: This year was very difficult. I can be an expert here because I'm the person who is selling ACMI products basically on the market. This year was really challenging for everyone because of all this geopolitical situation in the Middle East and so on. Moreover, initially it was even seen that people, mostly people are waiting for the crisis. End users are waiting for the crisis, meaning that they are minimizing their expenditure on the leisure destinations and so on. It was seen already last year, end of last year. So now, taking into account that everyone is already tired with the current situation, with all the crisis, with this Russian and Ukrainian development and some kind of threats of Russia to involve into the Europe and so on, it might also impact negatively, but as far as I can see, the next year must be significantly better than this year because all the airlines, we need to find the way how to still grow in different environments. But specifically here, everyone is trying to manage their stuff. I think ACMI will be growing slightly for the next... starting from the next year, but the P&L of ACMI providers will not still be in a way we were expecting that in 2025 and so on. So I think there will be some kind of movement in next year for the improvement, but, you know, everything depends. It's like a lottery. You cannot... it's like a lottery. You cannot understand what would happen in between Iran and the United States, what will happen between Russia and Ukraine, how escalation... would it be any escalation or it will not be? Would Israel be impacted heavily? Because there is a lot of ACMI consumption in Israel, for example, and Middle East, how it would work? If, for example, the crisis will be finished, then there will be a lot of demand on ACMI, specifically in the Middle East and Israel, everywhere. If it still will be under the pressure, then it will be a slight improvement from this year because this year was really the lower point of the ACMI business.

DF: So does the A220 make a good aircraft for the Middle East on a normal basis for the Israel-Middle East ACMI demand, or is the 320 or equivalent better to operate down in that area?

AG: Yes, definitely. If you look into the statistics, Airbus A320 is the major ACMI provider aircraft because this is more effective for the ACMI business and it's really something customers are looking for with this capacity of 180. The number of aircraft is much higher than, for example, 737-800, which is also a demanding product. There are 2 aircraft

which are demanding products on an ACMI basis, A320 and 737-800. I think it will stay like that for the future until some other middle-range aircraft comes on the market.

DF: But, I mean, there's a real lack of 737s and 320s because of manufacturing issues, demand, and orders. If you see a return to normalcy in the Middle East, is there a market for the 220 or where else outside of sort of the inter-Europe market? Do you think the A220-300s that the company is operating could see demand on the ACMI side or is it really isolated to the European market?

AG: Historically, the European market is the most valuable market and it's bringing much more revenue. Because of obvious factors, because of the paying capabilities, because of the demand, so on. But there are markets like the Middle East, specifically Saudi Arabia. Saudi Arabia is taking a lot of ACMI capacity during the all-year-round period, specifically on the Hajj, Umrah and so on. There will definitely be a market there in Saudi Arabia. The problem is that there is some escalation going on now in Saudi Arabia, which is basically not really positive on the market.

DF: Yeah.

AG: Israel the same. Israel is consuming a lot of ACMI capacity. If there would be some kind of safety in the area, I think there would be a significant portion of this product there. In Africa, Africa is growing. If you can see the statistics, Africa is now closer and closer to the European market in terms of the amount of ACMI capacity. So it's like a new market for the ACMI. Sooner or later, it would happen.

DF: And does that fit the capacity and fuel efficiency for the 220 versus the 320 and the 737 or is it a third option or a fourth or fifth option relative to other ACMI options in Africa, Middle East?

AG: I would say 220, it's anyways a regional operation aircraft. So it's not something, it's a 150-seater. So that means it's a niche product. So the companies which are using such kind of niche capacity then they would be interested in such kind of cooperation, for example, with airBaltic. You see, now it's Papua New Guinea. I know airBaltic has been working with a Uruguay company, new startup. So they are working on several solutions to be able to place that aircraft. And I know Nigeria is very supportive of having aircraft. It's just a matter that airBaltic do not want to send still aircraft to Africa, being afraid that they would just destroy the cabin and then all the investments being done on the aircraft would be completely destroyed. So I would say it's a niche product.

DF: Okay, so they're limited in terms of... really limited in terms of the growth, at least in the near term. The reason I ask is, you know, they obviously have excess aircraft, and I'm just sort of curious if they could push more into the ACMI business or if it's, sounds like it's pretty static.

AG: I'm confident they would start to work on the more exploration of the market based on the ACMI, specifically in the wintertime, because wintertime will be hitting them drastically. Specifically now in October... September is okay. They are still receiving revenue significantly in the summer season. Even regular flights are bringing them some small profit, but you know, starting from October until end of March, this is the main killing period for all the airlines, and specifically airBaltic. So definitely, they would be looking to find a place for their aircraft everywhere in the world. So I will be really looking into them as a competitor at some point because they would be offering some really good product to the market. What is the price? This is another question, but they would be a really good competitor to me.

DF: Okay, so the problems for airBaltic didn't start with the Middle East. You know, there's a history going back to Russia invading Ukraine, which at one point was a market. Theoretically, if that was to be resolved and some semblance of normalcy were returned, is the Riga to Russia or Ukraine a viable or material market, or any of the other Baltics?

AG: To that matter. I will tell you one thing. This was one of the main business plan points for them to have connection in between East and West. One of the main, initially Riga was dedicated to be a hub between the Eastern world and the Western world. So it's also really much impacted them. So if, for example, war in between Russia and Ukraine will be finishing, then probably airBaltic would start to fly first to Ukraine. And then only after some time they would, because, you know, Baltic states are more radical to the eastern neighbor. So I would assume that Ukraine would be open first. Because it was a really huge capacity of flying of flights from Ukraine to Baltic states. And then Russia will be open as well at some point, but not immediately because there is some political tensions in regards to the Russia itself as well.

DF: Given the amount of time that's passed since that started and when that plan was in place, right, we're talking back to. I mean, 14 was when the Crimea, I believe, occurred. Maybe I'm wrong about that. I apologize to political science people if I'm wrong. Are there other Baltic hubs or other hubs that would make more sense at this point for Ukrainian connection or does Riga still fit because of capacity or infrastructure or for other reasons?

AG: If you look into the infrastructure in Vilnius Airport or Tallinn Airport, then Riga of course make a lot of benefits because of capacity and specifically transit capacity we can hold. Therefore I think Riga would anyway stay as the best hub, Riga Airport as the best hub for such kind of Eastern to Western destinations. And if you look into the location of Tallinn it's more to the north so it's no sense to fly from Ukraine to Estonia to make a connection to the West. But Vilnius, unfortunately, for the Vilnius airport, it's a very old one, not really organized, not really having capacity to take significant amount of transit passengers. So at this stage, I would say Riga would anyway will be the hub, the main hub when the escalation and the war will be finishing in between Ukraine and Russia. But it's also, you know, depending from the Lithuanian government if they would be capable to make some kind of development of their airport. I do not see that it would happen now and soon. So Riga would still be, you know, the main hub for that.

DF: I mean, any reason that you would skip into Poland rather than going to, you know, Latvia or Riga?

AG: Yeah, it's also a good question. Yeah, Warsaw is also the good hub. It's also a good hub, but you know how it works with airports. There is always some kind of limited number of slots. You know, Warsaw DF: Sure.

AG: also cannot take everyone. So it's anyway will be used, you know, airports will be used, different airports will be used to be holding this position as a hub and so on. But in the Baltic states, if you're asking, then it's Riga definitely. It might be Warsaw as well, but I know that in the summertime specifically, Warsaw is very congested as well.

DF: So it really does have a, given the capacity availability across the rest of Europe, it still has that opportunity if or when that war gets resolved.

AG: Yeah, I think it would be definitely, the volume will resume to Riga as soon as the war will be finished. But, you know, I do not really see how it would finish so fast taking into account current development there. I do not think it would happen next year even. So if we are looking on the long-term perspective, it might be the situation then, for example. The Russia will cut the part of the Ukraine and it will be somehow agreed in between. But in this case, in any case, Russia will be under the sanctions and probably the flow from the Russia will not be going through the European cities for some kind of long time. Similarly as it was in Cuba, for example, and any other countries like that. It's a bit complicated. If the country will be under the sanctions anyway, it would be difficult to resume the normal standard operation.

DF: Fair enough. Yeah, because my feeling is that, like you said, it's unlikely it happens, but it also seems unlikely that you'd have a significant expansion of other airports in the region that would be positioned to pick up that initial capacity. So at least it's positioned well at this point, right? I mean, that's sort of the thinking that I would have around

it.

AG: Yeah, definitely, we need to think now. We just need to exclude this portion of the business which might come. We just need to focus right now; airBaltic needs to focus on stabilizing the operation with the Lufthansa group, maximizing it, to get the proper P&L, and then optimize the routes in Baltic states, specifically in Riga, to operate to the maximum on the profitable routes for them. And then they may enter into the at least break-even point in the future, and then maybe only maximizing the capacity for the ACMI may bring them to the profitability.

DF: Would you expect any costs for the company to exit the Tallinn and Vilnius airport capacity?

AG: I think we would make it more efficient if we would stay in Riga. We would not need to pay extra for the base establishment in the different countries. And these countries, they can easily survive without airBaltic as well. It's a lot of statements everywhere that it will be difficult. No, it will not be difficult. Ryanair is just waiting, knocking into the door. They can fill in the gaps immediately.

DF: So there wouldn't be costs with canceling or significant costs canceling gates or anything like that?

AG: I think there will be some kind of minor cost, but if you are looking strategically into the long-term perspective, I think it would be the best thing to do at this stage when the company is really in emergency situation.

DF: But I mean, that sounds fine. I just think about it from the perspective of... is there a material significant cost to getting out and it doesn't sound like there's a... It'll cost something, but not a lot.

AG: I don't believe it's any cost. I don't even think that we do have some kind of base there. I think we just place the aircraft there, make arrangements in the hotels and we do not have really staffing in this airport. We are using subcontractors there. So I think it will not be a significant cost for them to step out from this business.

DF: Okay. Well, thank you. We're at the end of the hour, so we'll go ahead and wrap up, but I really appreciate your thoughts and insights. Thank you. For our clients, if you have additional questions for Alex, please reach out to your salesperson. We can help you set up a consult, but thank you very much and everyone have a great day. Thank you, Alex.

AG: Thank you so much. In case if you need more or some kind of insight, please let me know and we can also discuss it on the other call.

DF: Absolutely. Thank you again. Take care.

AG: Yeah, bye.

DF: Bye.

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