Airline SAS AB received approval from a bankruptcy court in New York for a $1.2 billion rescue package that will see Air France-KLM and private equity firm Castlelake LP become owners in the Scandinavian flag-carrier.

The company filed for Chapter 11 bankruptcy protection in July 2022, saying it faced a significant decline in passenger demand during the Covid-19 pandemic as well as a series of pilot strikes and intense competition from low cost air carriers. The agreement will further consolidate Europe’s aviation industry with Air France-KLM having the option to take a controlling interest after two years under certain conditions.

The new shareholder group, which also includes the Danish state and Lind Invest ApS, can now provide the ailing airline with $475 million in new equity and $725 million in secured convertible debt. Castlelake is also lending money to SAS to refinance the $500 million outstanding on a Chapter 11 loan provided by Apollo Global Management Inc., which lost out to the Air France-KLM consortium, according to a statement late on Tuesday.

SAS repeated an earlier stance that there will be only a modest recovery for general unsecured creditors, no recovery for subordinated unsecured creditors and no value for existing shareholders when the firm emerges from the chapter 11 process.

The airline said it expects the Chapter 11 reorganization plan to be approved early next year, followed by relevant regulatory approvals in Sweden.

The investment agreement “shows that our new investors believe in SAS and our potential to remain at the forefront of the airline industry for years to come,” said SAS Chief Executive Officer Anko van der Werff.

The case is SAS AB, 22-10925, U.S. Bankruptcy Court for the Southern District of New York (Manhattan)