MIAMI – Investors now have the chance to bid on and acquire US$463m of debt in insolvent Italian and German airlines at a discounted price.

Bloomberg reports that a group of creditors that bought Etihad Airways (EY) PJSC-linked bonds is setting up an auction of US$463m of claims against insolvent airlines Alitalia (AZ) and Air Berlin (AB). The group hopes to recover some of its investment through the auction.

Bloomberg says that Etihad sold US$1.2bn of bonds between 2015 and 2016 to prop up loss-making airlines in which it owned stakes, including AZ and AB. Etihad later changed its strategy and decided that it did not want to support these airlines anymore.

In 2015 and 2016, Etihad sold US$1.2billion in bonds to prop up failing airlines, including airberlin. Photo: Etihad

Pennies on the Dollar

Those who purchase the discounted debt at auction could receive payment should the insolvent airlines exit bankruptcy and turn a profit if they liquidate their assets or if the purchasers re-sell the debt itself.

Before participating in the auction, bidders attempt to determine how much they might make in these scenarios. Then they decide on the amount they are willing to bid on the debt. That amount is typically pennies on the dollar.

Alitalia has been under “Extraordinary Administration” since 2017, after several years of not turning a profit. Air Berlin filed for insolvency on August 15, 2017, and ceased operations on October 27, 2017.

Barclays Bank Plc will arrange the sale. Potential buyers will be able to view documentation on June 21. The auction should take place within the next two weeks.

Featured image: Alitalia Boeing 777-200 EI-ISB. Photo: Alberto Cucini/Airways