The war with Iran is "reaping" European airlines – Wave of bankruptcies and acquisitions is coming

The escalation of conflict in the Persian Gulf drives oil prices higher as investors and aviation industry executives see growing signs that financially weaker European airlines may be pushed into a new wave of restructuring, acquisitions, or even bankruptcies. British low-cost carrier easyJet is close to a buyout led by US private equity, which would take the 30-year-old airline private at a valuation significantly lower than its pre-pandemic levels. At the same time, airBaltic is seeking short-term financing to avoid defaulting on its obligations, while Norwegian carrier Norse Atlantic is conducting a strategic review of its future direction.

War increases costs and exposes vulnerabilities

As Reuters notes, although a large portion of the industry improved its financial standing after the Covid-19 crisis, the surge in fuel costs has pressured airline stocks and exposed the fragile balance sheets of certain carriers, which are now considering restructuring, buyouts, or even creditor protection proceedings. "We are currently presenting proposals to four or five very large airlines in Europe for restructuring cases," Barema Bocoum, head of Europe, Middle East, and Africa (EMEA) at financial advisory firm Interpath, told Reuters. The global aviation industry last month nearly halved its profit forecast for 2026, citing the conflict in the Middle East, which has driven up aviation fuel prices, disrupted critical flight corridors, and highlighted the vulnerability of an industry operating on razor-thin profit margins.

"The cycle ended before it even began"

Bankers, investors, and analysts argue that the prolonged war involving Iran, which caused a sharp spike in fuel prices this year, has worsened underlying cost pressures that had already accumulated since the pandemic. "It feels like the cycle is almost over before it even started," said Rob Morris, a UK-based aviation industry analyst.

Airlines shift to "conservative" operations

The more difficult environment has led airlines to scale back their expansion plans. Airbus revised downward its 20-year forecast for passenger aircraft demand this month, as military conflicts and trade tensions curb the strong post-pandemic recovery in air travel. "Airlines are mostly keeping growth very tight in the US, Europe, and Southeast Asia," said Bertrand Grabowski, an aviation consultant and former industry banking executive. "With a few exceptions, like Turkish Airlines, companies are extremely cautious about adding capacity."

Fuel costs threaten the weakest carriers

The elevated cost of jet fuel, which can exceed a third of an airline's total expenses when prices are high, has raised intense concern over the financial resilience of air carriers. Although fuel prices have stabilized in recent weeks, the renewed volatility in the Middle East has cast doubt on whether the weakest European airlines will be able to generate sufficient cash flow during the critical summer season to survive the winter. "Smaller airlines are probably the ones most at risk," said James Halstead, a London-based aviation analyst. As he explained, the loss of passenger traffic during the summer season can prove fatal for some companies in an industry that is heavily dependent on available liquidity. "They may manage to get through the summer, but the greatest difficulties could appear early next year. The typical pattern is that airlines run out of cash in February," he noted.

In the crosshairs for acquisitions and consolidation

Poland's LOT has been a potential consolidation target in the industry for years, while Latvian carrier airBaltic has seen the yield on its 2029 bond spike this year, reflecting increased risk perception among investors. Shares of Norse Atlantic have collapsed nearly to zero since its spectacular stock market debut in 2021. airBaltic declined to comment. LOT maintained that its performance in recent years proves the strength of its business model and long-term strategy. Norse did not respond to a request for comment.

The industry has a history of defying collapse predictions

The aviation industry has frequently defied predictions of mass bankruptcies, demonstrating resilience in the face of external shocks. However, some analysts argue that there are now early signs that the post-pandemic upward trend is losing momentum due to higher operating costs. Investors are closely monitoring capacity plans, used aircraft prices, and the number of bankruptcies to determine whether the industry's strong run is coming to an end. In the United States, rising costs for fuel, labor, maintenance, and leases have gradually eroded the cost advantage of low-cost carriers and contributed to the collapse of Spirit Airlines in May.

New waves of acquisitions on the horizon

Analysts have warned that the balance sheet of low-cost carrier Wizz Air is vulnerable, making it a likely target for consolidation. The company maintains that it possesses sufficient liquidity; however, CEO Jozsef Varadi stated in April that he expects more bankruptcies in the industry toward the end of summer as forward bookings for the less profitable winter season decline. At the same time, he estimated that Wizz Air could benefit from the troubles of other carriers and acquire new routes. "We remain opportunistic," he said. Willie Walsh, Director General of the International Air Transport Association (IATA), told Reuters in June that some airlines will be forced out of the market or bought by larger groups, especially if fuel prices remain high. "Unfortunately, I think there will be airlines that struggle to cope with these very high fuel prices," Walsh said.

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