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"These promoted skeletons have traded in their joy of destroying walls for a joy of destroying defenses. Deploy them to take out pesky mortars and cannons!"
Level 1 & 2
Level 3 & 4
Balloons are "promoted" Wall Breakers that now attack from a hot air balloon. They drop bombs on the villages with a large area splash damage, but can be easily taken out by any anti-air defenses (such as the Air Defense).
Balloons are slow-moving aerial units that do devastating amounts of splash damage to ground targets.
Important note: In many cases a single Balloon will take enough time to destroy the remaining buildings that your game will time out due to inactivity, which will cause your attack to end prematurely and be unsuccessful (regardless of how many stars you had earned to that point). To prevent this from happening simply change the view every few moments (by panning or zooming).
When raiding other players, time is limited, so make sure you take out all the Air Defenses quickly, then send in multiple Balloons.
Groups of five Balloons or more can usually overwhelm an Archer Tower. Nine Balloons is generally assured destruction unless there are Air Bomb or an Air Defense nearby.
If Elixir is no object, dropping a Dragon near an Air Defense before deploying Balloons can protect them from being attacked for a significant amount of time, much like Giants can occupy a Mortar.
You can also send Balloons after Air Defenses themselves, but this isn't recommended if the Balloons have a long distance to fly for they will be shot down quickly.
Although Balloons are slow moving, their damage is excellent; a good option is to speed them up with a Rage Spell. "Rage-Balloons" is an effective, if not often used, strategy (the only drawback is the time to train them).
Some people forget to buy Air Defenses; Balloons (and Minions) are a great way to teach them the error of their ways.
Destroy the Air Defenses, as their sole purpose is to destroy air units (and they are very good at it). Mistakenly placing a Balloon while the Air Defense remains active will cost you!
Generally, Balloons are relatively decent as a defensive unit: if a player is attacking only with troops that cannot target air units (Barbarians, Giants, Goblins, etc.), the Balloon is perfect for defending as it cannot be destroyed except by Lightning Spells. It is especially effective against Barbarians and Goblins as it does splash damage.
From a defensive standpoint, it takes quite a few Archers to take out the Balloon, which effectively weakens the raid. Its only major weaknesses are Dragons and Minions, both of which can destroy it easily without fear of counterattack. A single similar-level Wizard (up to level 3) is also able to destroy a Balloon due to its high damage output, but only if it has sufficient range to fire twice before the Balloon closes (the Balloon will kill the Wizard in one shot). Beyond level 3, two Wizards would be required.
At level 3, the Balloon receives wooden armor attached to the sides of the envelope underneath its rigging.
At level 5, the Balloon's basket gain golden spikes attached to its side.
At level 6, the Balloon's red envelope turns to black with a white skull on it, and the wooden armor become gray-black steel.
Appropriately, at each level the Balloon pilot resembles a similar-level Wall Breaker.