NEWS ANALYSIS: Lenders and creditors effectively took over ownership control of Norwegian Air on Monday, enabling the long-troubled airline to qualify for the rest of a state crisis package valued at around NOK 3 billion. That clears the way for what management calls the “New Norwegian” to take off and rebuild, but it still faces plenty of turbulence ahead.
“The (bankruptcy) danger is over for now,” said Cecilie Langum Becker, economics commentator for state broadcaster NRK. “The question is now long it will be until the next crisis.”
That’s a timely question indeed, given all the restrictions that remain in place on international travel because of Corona virus containment measures. Not even Norwegian’s own management thinks the airline will be able to really spread its wings again until sometime next year.
The airline was pulled back from the brink of bankruptcy on Monday, however, when more than 96 percent of its existing shareholders approved management’s crisis plan. It means their holdings became severely diluted, since the airline’s lenders and other creditors including leasing companies already had agreed to swap debt for equity and become shareholders themselves.
Now they become the major, mostly foreign, owners of the “New Norwegian Air,” and questions are already swirling over how long that will last. Most expect they’ll sell out just as soon as they can sell at a profit or, at least, cover some of their losses. The long-term ownership of Norwegian Air thus remains one of the biggest questions after Monday’s extraordinary shareholders’ meeting.
Small shareholder went along for the ride
That’s when the exisiting small shareholders, who initially had objected mightily to the crisis plan and refused to approve it, changed their minds after receiving an email from Norwegian Air founder Bjørn Kjos over the weekend. “He was very clear that there really were no alternatives,” Helge Stray, who has served as spokesman for a group of small shareholders in Norway, told NRK.
Stray added that the group had also received “very good information” from Kjos that prompted them “to turn 180 degrees” and vote in favour of the crisis plan after all. Stray also thinks the state will offer even more financial assistance to keep the airline flying, as part of necessary transport infrastructure in Norway.
Stray was not happy that Norwegian Air will now essentially become “a foreign company with foreign owners,” owned by overseas financiers and leasing companies. He thinks, however, that the airline will at least have a chance now “to survive this long and deep crisis.”
There were holdouts, reported newspaper Dagens Næringsliv (DN), and not all small shareholders were convinced by Kjos or went along with the crisis plan. “I think Norwegian’s many employees and the Norwegian public deserve a permanent and sustainable solution,” Jarle Drevdal, another of Norwegian’s small shareholders, told DN. “That’s not part of management’s proposal.”
Drevdal went so far as to propose Sunday night that the extraordinary shareholders’ meeting on Monday “be postponed, cancelled or declared invalid. I’m very surprised by Helge’s (Stray’s) turnaround.”
Newspaper Dagsavisen, meanwhile, editorialized against any further state aid for the “New Norwegian.” It doesn’t think taxpayers in Norway should rescue a company that’s taken enormous risks over the years and been “built up through the rawest form of capitalism, in which it’s tried to press down pay, pensions and labour agreements. Norwegian has forced through a brutal form of worklife and even threatened to flag out if they didn’t get their way.”
At the same time, even Dagsavisen admitted that it’s “important for Norway to have competing airlines.” Sympathy was minimal for Norwegian Air’s leaders and shareholders but “great for the employees … so we hope operations can be secured in a future with a different business philosophy.” Unhappy customers who have piles of complaints outstanding against the airline may hope for a different business way of doing business, too.
‘Corona crisis is not over…’
Jacob Schram, who recently took over as chief executive officer of Norwegian Air after Kjos, needed support from two-thirds of the airline’s existing shareholders for his rescue plan and effort to meet strict requirements for state loan guarantees. He ultimately got it, enabling him to breathe a short sigh of relief before getting back to work on his other plans to get Norwegian back in the air.
That won’t be easy. “The Corona crisis is not over and Norwegian, along with SAS and Widerøe (the two other airlines offering domestic and international routes in Norway) will need more liquidity,” the leader of one of Norwegian Air’s employee organizations, Unn Kristin Olsen, told NRK. She suggested that the Norwegian state will ultimately need to offer the airline hard cash and capital, not just loan guarantees.
Investors, at any rate, responded well to the news from Norwegian on Monday. It was among the most heavily tradded on the Oslo Stock Exchange with share prices rising nearly 30 percent to NOK 6.53 a share as of early afternoon. Most all other issues were trading down, some of them dramatically, on Monday, with state oil company Equinor and Aker BP both down more than 5 percent, DNB down 3 percent and Norsk Hydro down nearly 8 percent. Norwegian did well by comparison.
‘Hard work ahead’
“We feel an incredible sense of relief right now,” Schram told reporters at a mid-day press conference. The leader of the airline’s board went even further: “Today is nothing less than an historic day,” claimed Niels Smedegaard. “Today is the birth of what we call the ‘New Norwegian.'”
Schram quickly noted, however, that there’s still a lot of “hard work ahead for us. Now we have to take this from strategy to implementation.” The leasing companies that own aircraft used by Norwegian have had to reduce their payment demands by at least USD 500 million. Bondholders will have to convert 60- 85 percent of what they’re owed to shares, relieving the airline of early NOK 4.2 billion in debt. The “New Norwegian” will also need to attract NOK 400 million in a new stock issue.
The airline currently has only seven aircraft in operation running around 20 to 30 flights a day, down from around 600 (with seasona variation) before the Corona virus crisis hit. “New Norwegian’s” vastly reduced route schedule is likely to continue until at least early next year, when both domestic and some European routes will be expanded. The airline intends to resume some intercontinental travel as well, but only on routes that have proven profitable.
Still selling tickets for questionable flights
The airline became the target of more criticism within Norway just before the weekend, when business news service E24 reported how it continued to sell tickets, also for long-distance routes. Among flights on offer were some to Florida from June and South America from July.
Norwegian’s information chief Lasse Sandaker Nielsen defended the practice, claiming that “as soon as flights are cancelled, affected customers will get a message from us.” Pia Cecilie Høst of the state consumer council warned Norwegian Air passengers booking any flights that it remains risky to pay for any flights now. Passengers must expect departures to be delayed or cancelled, and if Norwegian’s survival plans fail and it ends up filing for bankruptcy after all, customers holding tickets will simply be lumped together with other creditors of the corporation.
“The authorities’ recommendation is clear,” Høst told E24. “You should avoid traveling now, and wait to make any holiday plans.” That makes keeping an airline airborne difficult indeed.