Airlines can (and have, all the time) go bankrupt, wipe out the shareholders, and force other stakeholders to take haircuts.
If LY goes "bankrupt", it won't necessarily mean liquidation, rather the creditors will be restructured, contracts voided and re-done, the equity holders will be gone (I doubt many here will shed a tear for the borovitches).
Israel should not miss this opportunity to restructure LY as a carrier of "startup nation" Israel rather than Balagan/Proteksia Israel.