• The rise in oil prices due to the Middle East crisis triggers predictions of acquisitions, restructurings, and bankruptcies for European airlines.

• Companies like easyJet, airBaltic, and Norse Atlantic already face financial pressures, seeking acquisition solutions, financing, or strategic reviews.

• Increased fuel costs and geopolitical instability are forcing the global aviation sector to adopt noticeably more conservative growth and expansion plans.

• Smaller airlines are considered particularly vulnerable, with analysts warning of serious liquidity problems early next year.

• Top industry executives estimate that sustained high fuel prices will inevitably lead to further mergers or closures.

The surge in oil prices caused by the resurgence of conflict in the Middle East brings the structural weaknesses of many European airlines to the forefront, with bankers and analysts predicting a wave of acquisitions, restructurings, and even bankruptcies.

The escalation of tension in the Gulf, which sent crude prices soaring once again, appears to act as a catalyst for a broader realignment in the European aviation sector. Industry executives and investors speak of growing signs that the continent's financially weaker companies are heading toward shake-ups.

Characteristic examples include the British low-cost carrier easyJet, which is close to an acquisition by a US fund that will take it private at a valuation significantly lower than its pre-pandemic high; Latvia’s airBaltic, which is seeking short-term financing to avoid the risk of default; and Norway’s Norse Atlantic, which has proceeded with a strategic review of its course.

Fuel Costs Return to the Forefront

Although the sector had managed to clean up its finances to a large extent after the pandemic, the new rise in the price of oil has pressured stocks and highlighted the fragility of several companies' balance sheets, which are now examining restructuring, acquisition, or even bankruptcy protection scenarios.

An executive from a consultancy firm active in the field told Reuters that they are currently in discussions with four to five major European airlines regarding potential restructuring scenarios.

The global sector had already cut its profitability forecasts for 2026 nearly in half, citing the conflict in the Middle East, which has increased fuel costs, disrupted key aviation corridors, and exposed the sensitivity of an industry operating on very narrow profit margins.

Shift Toward More Conservative Growth

The harsher environment has led airlines to take a more cautious stance regarding their expansion plans. Airbus revised downward its 20-year forecast for passenger aircraft demand this month, as war and trade tensions have slowed the strong recovery recorded after the pandemic.

According to an industry banker, most airlines in the US, Europe, and Southeast Asia are now maintaining very limited growth rates, with exceptions like Turkish Airlines, while the rest prefer to be particularly careful in increasing their capacity.

The cost of fuel, which during periods of high prices can account for more than one-third of an airline's expenses, has re-ignited concerns about the financial endurance of several carriers this year. Although jet fuel prices had stabilized in recent weeks, the renewed instability in the Middle East revives doubts over whether the weaker European carriers will manage to generate enough revenue during this year's critical summer season to withstand the winter.

A London-based analyst estimated that smaller airlines are the ones most at risk, as the loss of passenger traffic during the summer season could prove fatal for some of them, given that the sector relies heavily on available liquidity. According to him, companies may manage to "get through" the summer, but the biggest challenges are expected early next year, as many carriers' liquidity traditionally runs out in February.

Poland's LOT has been considered a likely consolidation target for years, while the yield on airBaltic's bond maturing in 2029 has risen this year, reflecting increased risk perception by investors. Meanwhile, Norse's stock has collapsed to near-zero levels following its high-profile stock market listing in 2021. A spokesperson for airBaltic declined to comment, while LOT stated that its performance in recent years proves the stability of its business model.

An Industry That Has Defied Collapse Predictions in the Past

Historically, the sector has repeatedly defied predictions of mass bankruptcies, demonstrating resilience against external shocks. However, some analysts believe there are early signs that the upward trend recorded since the pandemic period is beginning to lose momentum due to high fuel prices. Among the indicators analysts track are capacity growth plans, aircraft resale prices, and the number of bankruptcies.

In the US, rising costs for fuel, labor, maintenance, and leases have gradually eroded the competitive advantage of low-cost airlines, contributing to the collapse of Spirit Airlines in May.

Analysts have warned that the balance sheet of Hungary’s Wizz Air is vulnerable, making it a potential acquisition target—something the company itself denies, citing sufficient liquidity. Its CEO, Jozsef Varadi, stated in April that he expects more bankruptcies in the sector toward the end of summer, as bookings for the less profitable winter period appear reduced, noting however that Wizz could benefit by taking over routes from companies exiting the market.

The Director General of the International Air Transport Association (IATA), Willie Walsh, stated in June that if fuel prices remain high, some airlines are expected either to close down or be acquired by larger groups.

Source: ink.com