Etihad Airways Partners, the investment vehicle set up by Etihad Airways in the Netherlands for investment purposes in 2015, has rejected Air Serbia’s request for a whopping 82% debt reduction. Air Serbia made this request three weeks ago, after first notifying Etihad in June that it cannot fulfill its debt obligations to this investment vehicle. The situation surrounding the current crisis in the aviation industry is hitting Air Serbia hard, but the extent of the debt reduction requested is nevertheless very high.
Air Serbia wants an 82% reduction
In an announcement submitted to the London Stock Exchange on 22 July 2020, Etihad Airways Partners made known that Air Serbia requested an 82% reduction of its loan.
The figure of 82% is what Air Serbia arrived at based on what it has assessed “will be its likely revenue in the short and medium-term.” The reduction of 82%, Air Serbia claims, will enable it to “continue operating until the repayment date.” It would also enable it to “generate and accumulate the necessary cash to make such payment once trading activities recommence.”
However, as reported by N1, Etihad Airways has now refused this request by Air Serbia. In fact, Etihad Airways is demanding the repayment of all debts, in line with the signed agreements. This news comes in stark contrast to what was previously suggested by Air Serbia: the Serbian flag carrier said it is asking for debt restructuring talks in good faith and towards an agreement that is mutually agreeable.
Air Serbia requested debt restructuring talks in June
As Simple Flying reported two months ago, Air Serbia has made a request from its creditor, Etihad Airways Partners, to start debt restructuring talks as a result of “ongoing economic uncertainty.”
At the time, Etihad Airways Partners issued a notice to the London Stock Exchange which also stated that “due to the official closure on 19 March 2020 of airports in the Republic of Serbia for inbound and outbound flights”, Air Serbia would not be able to “perform its principal business activity of worldwide civil air transportation.”
Consequently, it would also be unable to “satisfy its obligations under Clause 6 (Repayment) of the Debt Obligation Agreement and any further payment obligations under the Debt Obligation Agreement.”
Why the debt restructuring?
Air Serbia has not had an easy time during the past several months. The Serbian flag carrier had some ambitious plans to launch several new routes this year, following 21 new routes launched in 2019. However, none of this materialized because Serbia has been hit by travel restrictions.
However, Etihad Airways itself has had a difficult time too. The UAE carrier registered just 30,000 passengers in total between April and June. The progress of this debt restructuring process will be interesting to follow. The first part of the debt matures within weeks already.