Oslo-based Norwegian Air has set off what’s likely to be a flood of layoffs in Norway, after a government economic crisis package meant to aid troubled businesses was widely dismissed on Friday as inadequate. Other companies in the especially hard-hit travel industry are ailing as well, while the crisis package also failed to win support in Parliament.
The government confirmed its plans to help offset the Corona virus’ impact on Norwegian business by covering much of the costs of temporary layoffs. It also offered tax relief on the airline industry valued at NOK 2.7 billion. There was no bailout offer, however, that might have included a capital infusion. Both Norwegian Air and Scandinavian Airlines (SAS) were clearly disappointed, responding that the assistance offered simply wasn’t enough at a time when their revenues have all but disappeared.
Norwegian hotel owners, tour arrangers, restaurants and not least cultural and sporting events are all suffering from the effects of government-imposed shutdowns aimed at halting the spread of the Corona virus. Employers have little choice but to lay off staff when restaurants are forced to close, for example, and almost all travel comes to a halt.
Norwegian Air struggling to survive
No company is hurting as much, though, as Norwegian Air, which was already struggling with heavy debt and a large fleet of troubled and grounded Boeing aircraft when the Corona virus crisis hit. After seeing its share price battered and ticket sales crashing, the airline also is hit hard by US President Donald J Trump’s stunning decision this week to ban flights from Europe as of Friday night. Even though trans-Atlantic flights from the UK and Ireland will still be able to land in the US, and Norwegian has a hub at London Gatwick, the enormous decline in traffic can be a fatal blow to the once-high-flying Norwegian.
Then came a top airline analyst’s report Thursday that warned of extreme liquidity concerns at Norwegian that can spook suppliers. Andrew Lobbenberg at HSBC thinks it’s improbable that Norwegian will be able to attract a new “meaningful” amount of fresh capital in today’s market. He predicted that Norwegian Air will need to park a considerable portion of its long-distance aircraft, noting that these are “challenging times” for the entire airline industry, and especially for Norwegian Air.
On Friday the airline confirmed it was cancelling another 4,000 flights and temporarily laying off around 5,000 employees, roughly half of its total staff. Norwegian’s new hard-pressed chief executive Jacob Schram, himself stuck in Corona quarantine because of recent travel abroad, candidly announced that the airline’s biggest need right now is cash. With hardly anyone buying airline tickets these days, Norwegian Air lacks cash to pay its staff and other expenses.
‘In the middle of a crisis situation…’
Schram described the situation as urgent, “we’re not talking about months, we’re talking about weeks.” He added that it pained him “to have to hit the button to lay off around 5,000 employees in Norwegian.”
Norwegian’s information director, Lasse Sandaker-Nielsen, had already responded to the HSBC analysis of Norwegian Air’s situation by sending a message that “Norwegian is in the middle of a crisis situation, which management and the entire organization is working hard to handle. The situation is changing constantly and is therefore extra demanding.”
There were signs, meanwhile, that suppliers are getting jittery. Newspaper Dagens Næringsliv (DN) reported that when one of Norwegian’s airline crews tried to check in at their hotel at London Gatwick, they were denied rooms until Norwegian paid in advance. Sandaker-Nielsen called it an “isolated incident” that was sorted out. He wouldn’t comment on whether other suppliers have asked for payment in advance.
Niels Smedegaard, leader of Norwegian’s board of directors, told Danish newspaper Børsen that the situation was “quite serious for the entire airline industry,” and tougher than even the situation after the 9/11 terrorist attacks in the US and the finance crisis of 2008. He said the risk of bankruptcy had increased for all airlines.
‘Just the beginning’
Prime Minister Erna Solberg and Finance Minister Jan Tore Sanner had claimed their crisis package offers were aimed at avoiding “unnecessary bankrupctcies and job losses.” Both stressed on Friday that the tax relief and layoff cost relief they rolled out was “just the beginning,” and that additional crisis measures would follow.
DN reported that European authorities were prepared to handle urgent applications that would allow the Norwegian government to offer direct state support to Norwegian companies including airlines. Examples could include loan guarantees or direct cash infusions to a recipient’s capital, or that the Norwegian authorities could step in and take over parts or all of a stricken but important company. Airlines in Norway are viewed as an important part of national infrastructure and Solberg has said at a press conference earlier this week that she would support it.
An epidemic like the Corona virus would reportedly qualify as an “exceptional” situation that would allow such support that otherwise would be viewed as violating competition law. It would also save thousands of jobs that the Norwegian government doesn’t want to lose.
Airline employee organizations have pleaded for support in what they call “a global crisis,” and so has Norwegian airline employers organization NHO Luftfart. Opposition parties in Parliament were also demanding on Friday that Solberg’s government improve its crisis package offer that could bail out Norwegian Air.
“No one is emerging unscathed from all this,” SAS’ chief executive Rickard Gustafson told DN earlier this week. SAS, which also has cancelled flights, has asked all its employees to take 20 percent pay cuts and agree to pared-down work schedules because of the airline’s dramatic decline in business.
Finance Minister Sanner claimed Friday afternoon that “we have a good dialog with the airline industry” and the government was “evaluating various measures” while making sure it continued to comply with state support regulations. “I can’t say what can come in the next phase (of crisis assistance).”