(Reuters) - Scandinavian airline SAS said on Tuesday a U.S. Bankruptcy Court had approved its Chapter 11 plan of reorganization.

U.S. Bankruptcy Judge Michael Wiles approved SAS AB's bankruptcy restructuring at a court hearing in Manhattan, clearing the airline to move ahead with a restructuring that includes a $1.2 billion investment from a consortium of bidders, including the Danish government.

The deal will provide up to $325 million in value to the airline's junior creditors through a combination of cash and equity in the reorganized company.

The restructuring will allow SAS to emerge from bankruptcy as "a more competitive and financially stronger airline," SAS attorney Kelly DiBlasi told Wiles at the hearing.

SAS, which filed for bankruptcy in July 2022, used its Chapter 11 case to resolve a pilots strike, renegotiate labor agreements, and reconfigure its aircraft fleet, in addition to the financial negotiations, DiBlasi said.

The company's exit from bankruptcy will be financed by $1.21 billion in funding from hedge fund Castlelake, airline Air France-KLM, investment manager Lind Invest ApS and the Danish state.

The restructuring was supported by an "overwhelming majority" of the airline's creditors, Diblasi said in court.

The restructuring will result in the cancellation of SAS equity, with no payments to existing shareholders.