With most of its fleet parked at the airport in Stavanger, an intense effort to rescue Norwegian Air was swirling Wednesday afternoon in several parts of the world. The deeply troubled airline has qualified for the first portion of an emergency state aid package, but it’s still flying through heavy turbulence made worse by the worldwide Corona virus crisis.
Two Nordic banks, identified by newspaper Dagens Næringsliv (DN) as Norway’s largest bank DNB and Danske Bank, reportedly offered to guarantee 10 percent of the NOK 3 billion put up by the state last week. The money is viewed as emergency funding, organized by Norway’s Garantiinstituttet for exportkreditt (GIEK), to shore up the airline’s liquidity.
The guarantee, however, can provide the first NOK 300 million of a partial state bailout of the airline. The state has offered to provide the remaining NOK 2.7 billion, and Norwegian’s shares jumped on the news of the first qualification round on Tuesday.
The remaining funds are set to come in two outlays. Another NOK 1.2 billion will be guaranteed by the state if Norwegian Air manages to get other lenders to agree to both interest rate- and payment relief, while the remaining NOK 1.5 billion hinges on whether Norwegian can dramatically boost its own capital reserves.
Complex sources of financing
That’s where the rescue plan gets complicated and is far from assured of succeeding. Norwegian has entered into various complex sources of financing over the years, all tied to its massive fleet expansion not least when it launched intercontinental routes. DN summed up Norwegian’s financing on Wednesday.
In addition to conventional loans and export guarantees, Norwegian’s financing includes bonds and debentures plus various new debt instruments involving investors in Ireland, the US and Japan. Those debt instruments include Enhanced Equipment Trust Certificates (EETC) traded in Ireland, sale-leaseback deals involving banks and investors in Japan, and convertible debt instruments traded through US hedge funds. Norwegian also must get other conventional aircraft leasing companies to accept postponement of payments until its flying again with money coming in from ticket sales.
It all boils down to Norwegian’s management having to contact and negotiate with investors on several continents, all of whom must approve the rescue plan before the state releases funds. DN reported Wednesday evening that Norwegian has sent a letter to some of its many lenders, in which it asks for exemptions from interest and principal payments until 6:30pm on June 30.
Niels Smedegaard, the Danish leader of Norwegian’s board of directors, told Danish newspaper Børsen that a solution must be in place within one to two weeks and he worried they were running out of time. “We have an extremely complex financing structure,” Smedegaard told Børsen. “We’ll have to be incredibly lucky if we can get this to succeed.”
Some investors reportedly support the rescue plan wholeheartedly, while others won’t go along. “It’s swinging over the whole spectrum,” Smedegaard told Børsen. He indicated that several investors “with whom we’ve worked for years” are highly supportive, while “others want to help but don’t have a full overview of their own situation. And then there’s those who say we can go jump in a lake.”
Asked whether bankruptcy was a real risk, Smedegaard responded rather alarmingly that “the question is whether we can do this before the sand runs out of the hourglass. That’s what the next one- to two weeks will decide.”
On Wednesday came news from Norwegian Air’s founders Bjørn Kjos and Bjørn Kise that their private investment company HBK Holding was calling back all shares lent out to the market for so-called “shorting” (hoping to earn money on a fall in the share price). That sent Norwegian Air’s share price skyrocketing, up more than 35 percent before trading was halted. It later settled down a bit but closed up 10.54 percent after another rollicking day on the Oslo Stock Exchange.
The entire crisis package for Norwegian Air also needs approval from competition authorities at the European Free Trade Association’s surveillance authority ESA. In the meantime, Norwegian has cancelled the vast majority of its flights and laid off thousands of workers.