The hard-pressed chief executive of Norwegian Air said he was grateful f0r a government offer Thursday evening of NOK 3 billion in state loan guarantees for the airline that’s now struggling to survive. Even if Norwegian meets all the conditions tied to the loans, though, the money will only ensure operations until June.
Jacob Schram, who’s had to work under massive turbulence since taking the helm at Norwegian just a few months ago, said the airline’s plan has been “to build a new and stronger Norwegian.” It’s been part of the airline’s strategy “to go from growth to profitability,” after intercontinental expansion left the airline saddled with massive debt.
Schram said at a brief press conference Thursday night that the airline had been poised to log its best summer season ever. Then came the Corona virus crisis, which has grounded airlines all over the world and cut off revenues almost overnight. Norwegian has had to slash 85 percent of its flights and laid off thousands of workers this week.
New airline crisis package rolled out
The Norwegian government, keen to retain an extensive and competitive airline industry in a vast, mountainous country that relies on air travel, unveiled an airline crisis package Thursday evening that has majority support in Parliament. It offers a total of NOK 6 billion (USD 522 million) in state guarantees for bank loans, with Norwegian earmarked to receive half of the loan proceeds that will be organized through Norway’s GIEK (Garantiinstituttet for eksportkreditt). The state will guarantee 90 percent of the loan proceeds, provided external banks, credit institutions or other commercial lenders put up the remaining 10 percent.
Rival Scandinavian Airlines (SAS), which already has received financial assistance from the Swedish and Danish governments, is also eligible to apply for guarantees for NOK 1.5 billion of the financing. Norway’s small commuter airline Widerøe, which can serve airports with short runways, and other small carriers have also been offered a total of NOK 1.5 billion in state guarantees. Norwegian Broadcasting (NRK) reported that the state is also paying out NOK 40 million a month to Widerøe to make sure it maintains its flight tilbud to remote airports in outlying areas of Norway.
Schram, who has all but pleaded for a rapid source of liquidity as his airline’s cash runs out, called the loan offer “very positive” and believes the suddenly hard-hit airline industry “has been heard.”
At the same time, however, NOK 3 billion isn’t enough to ensure operations for the long term. The loan guarantees also carry a long list of conditions, including a demand that the airlines receiving the taxpayers’ money had capital of at least 8 percent at the end of the last quarter.
Only SAS and Widerøe currently satsify the capital requirements. In Norwegian’s case, the state is offering to guarantee an initial loan of NOK 300 million with few strings attached. Since Norwegian doesn’t meet the offer’s capital requirements, however, it will have to get its creditors to forgive their interest rate charges and postpone principal payments for three months, in order for Norwegian to qualify for second-phase financing of up to NOK 1.2 billion. For the final third-phase NOK 1.5 billion in loan proceeds, Norwegian Air must show that it’s able to increase its own capital.
‘Times are difficult’
The government realizes “that times are difficult for the airline industry,” Norway’s Trade Minister Iselin Nybø of the Liberal Party said when presenting the rescue package, but the government is also acutely aware that Norwegian had financial challenges before the Corona crisis began. There also reportedly was little interest in the state just taking over Norwegian, especially after speculaton sent its share price up on Tuesday after crashing earlier.
The state’s crisis loan guarantee offer instead demands that Norwegian’s owners and current lenders “must contribute towards improving the financial situation for the company, if the state is to offer the guarantees and help to make financing available.” Nybø said the government believes “this is a package that should make it easier for (all airlines with operating approval in Norway) to get through these demanding times.”
‘Keen to make this work’
Schram said he and his colleagues “will do everything in our power” to meet the state’s lending requirements. “We have been very clear that we need liquidity and we need it fast,” Schram said. “We are very grateful for what we’ve been offered.”
The CEO, who met reporters just an hour after the crisis package was announced at a press conference at the Parliament, said it was “much too early” to comment on the loan conditions themselves. “We’ll get down to work on them tomorrow,” he said. “I think everyone is keen that we make this work, and this (process) will continue, and we’ll have a new dialogue (with state officials). We’ll have to wait and see what happens after June.”
Transport Minister Knut Arild Hareide of the Christian Democrats said the government is also keen to maintain strong aviation infrastructure around the country. “Our professionals at Avionor (the state airport agency) have laid out a structure that ensures that we have at least a minimum route system in Norway,” said Hareide.
He noted that several of the other economic relief measures in government crisis packages rolled out over the past week will also benefit the airlines. They include a 4 percent reduction in employer taxes for the next two months, state coverage of laid-off employees salaries for the first 20 days, reduced VAT on travel services, removal of seat taxes and deductions or removal of various airport fees.
“We hope this package will be adequate in the start-phase,” Unn Kristin Olsen, leader of the airline employees’ union Parat told NRK, after meeting witih state officials on Wednesday. Torbjørn Lothe of the airline employers organization NHO Luftfart called the state’s latest crisis package “a very good start, but it puts tough demands on Norwegian.” Pilots’ union leader Yngve Carlsen called it “a step in the right direction.”