Analysts following the ongoing drama around Oslo-based Norwegian Air now think the deeply troubled airline will have to drop the long-haul routes that put it deeply into debt. With an Easter deadline for a rescue plan approaching, time was running out over the weekend for Norwegian to get its creditors on board.
State officials have offered the rescue plan that can provide Norwegian Air with up to NOK 3 billion (USD 288 million) in badly needed cash and credit. After qualifying for the first NOK 300 million in loan guarantees, after Danske Bank and DNB put up 10 percent of the amount, Norwegian Air is now eligible for the state’s next billion-kroner outlay, but only if Norwegian’s creditors accept strict conditions.
They include a sharp increase in the airline’s capital, which would in turn mean potential losses for earlier investors and financiers. The state, meanwhile, has already emerged as Norwegian’s biggest shareholder following the first stage of the rescue plan and a decision by Norwegians’ founders Bjørn Kjos and Bjørn Kise to sell more of their holdings last week. Kjos, his family and Kise now hold less than 5 percent of Norwegian’s shares, giving the state, with its new stake in Norwegian via state pension fund Folketrygdfondet, more clout to enforce its capital requirements. With much of the first NOK 300 million already committed (at a time when flights cancelled because of the Corona crisis mean hardly any other cash is flowing into the airline) additional funding is urgently needed.
“If Norwegian survives with today’s build-up, it will be left with way too many (aircraft) orders and a business model for long-distance routes that have proved to burn up money,” Daniel Röska, an analyst at investment bank Bernstein in London, told Oslo-based newspaper Dagens Næringsliv (DN) during the weekend.
An alternative would be to pare back to Norwegian’s initial home market in the Nordic countries, without long-distance routes. “Otherwise I don’t think investors and the state will go in with considerable resources,” Röska told DN. “It would take too much time.”
‘Most important’ that Norwegian will still exist
Norwegian Air’s chief executive Jacob Schram, who took over the helm from Kjos last year, has already aired the possibility of dropping or cutting back on Norwegian’s long-haul intercontinental routes and has cut some. The routes, launched in 2013 with flights to Bangkok and New York’s JFK airport, were supposed to send Norwegian flying into a new era of profitable intercontinental expansion but hit turbulence right after take-off. The Boeing 787 Dreamliners it acquired for the routes had lots of battery and motor trouble as Norwegian’s debt soared.
Now they’re all parked at the airport in Stavanger. The low-fare routes were popular with passengers (when flights weren’t cancelled or delayed by all the Dreamliners’ troubles) but then Norwegian was hit by a crippling pilots’ strike and the grounding of its Boeing 737MAX fleet after fatal crashes. When the Corona virus crisis also hit all airlines hard, Schram was left to stress that the most important thing was simply “that Norwegian will exist after the (Corona) crisis.” Just days before the state presented its rescue plan, in the interests of also ensuring Norwegian Air’s survival as an important competitor to rival SAS, Schram said that “all stones would be turned” in the effort to return to “normal operations,” adding that “we’ll also have to go through the long-distance” aspects of Norwegian’s international route network.
Must ‘change course’
Frode Steen, a professor at Norwegian business school NHH (Norges Handelshøyskole) in Bergen, thinks Norwegian must “change course” regardless. “The impression is that short- and medium-distance routes in Europe have performed well,” Steen told DN, “but it’s been demanding to make (the long-distance routes) profitable.”
Steen noted that some progress was made before the Corona crisis hit, but “no matter what happens now, the company must do more.”
DN reported that Norwegian Air’s management and its legal advisers at Oslo law firm Wikborg Rein invited its bond-holders to take part in a telephone conference on Monday. It was unclear whether the airline would have an agreement with its biggest creditors by then. If a firm proposal for a solution is arrived upon, another meeting of all the bond-holders must be called with 14-day advance notice, and it will need two-thirds’ majority approval.
State standing by
The state’s top political representative, Transport Minister Knut Arild Hareide, told DN that it’s “of course been natural” for him to maintain close contact with all the large airlines in Norway and with the airline industry as a whole, noting that “aviation is experiencing a situation they’ve never been in before.”
Norwegian Air spokesman Lasse Sandaker-Nielsen wouldn’t comment on recent developments in the airline’s “dialogue” with its creditors or on the future of Norwegian Air’s long-distance routes.
“Right now our most important priority is to secure access to the loan guarantees offered by the state,” he wrote in an email to DN just before the weekend, “so that we can strengthen liquidity moving forward.”