Norwegian Air was back on the brink of bankruptcy Monday after the Norwegian government refused the ailing airline’s latest demand for financial aid. The risk of losing billions of taxpayers’ money by providing liquidity specifically to Norwegian was deemed as just too high this time, since the airline already has NOK 40 billion in debt.
“Our evalution of the risk weighed heavily,” Trade Minister Iselin Nybø of the Liberal Party told newspaper VG. “We have studied (the airline’s) financial structure and they have considerable debt, NOK 40 billion (USD 4.4 billion). It’s too risky to invest public funds in a company like Norwegian.”
The news sent Norwegian Air’s shares crashing on Monday, and prompted the Oslo Stock Exchange to put the company under “special observation.”
Nybø said the government would rather offer aid to all airlines through more “general means,” for which also Norwegian could apply. The state has already contributed extraordinary emergency funding of around NOK 13 billion to the aviation industry, including paying airlines Norwegian, SAS and Widerøe to keep flying several important domestic routes. Other aid has come in the form of loan guarantees (from which Norwegian has taken NOK 3 billion), lower taxes and fees and longer terms to pay back lines of credit.
Saved last spring
State aid offered last spring, when the Corona crisis first grounded most airlines’ fleets around the world, saved Norwegian Air from bankruptcy. The airline, already saddled with heavy debt even before the Corona crisis began, was grateful but then had a poor summer season. It’s been clear all along that more government aid would likely be needed, and the airline confirmed that in August.
The Norwegian government subsidises Widerøe to serve small airports around the country but has refused to return as an owner of SAS. The government doesn’t think Norwegian, which is not rooted in state ownership, should receive special treatment.
The rural-oriented Center Party, however, does, as a means of preserving jobs at Norwegian Air and maintaining competitive airline service around the country. News bureau NTB reported Monday that the Center Party is thus asking both the Labour- and Progress parties to form an unusual majority in Parliament to instruct the government “to find a solution” for Norwegian Air.
The Progress Party, meanwhile, understands why the government (of which it was a member) doesn’t want to take a bigger risk by investing more in Norwegian when its own shareholders now hesitate to do so. “But we’re looking at other measures that can help Norwegian aviation,” Progress’ Hans Andreas Limi told VG.
Frode Steen, an economics professor at NHH who follows airlines closely, said it came as no surprise that the government denied more aid specifically to Norwegian. “We expected a package that all airlines could apply for, not just one company,” Steen told state broadcaster NRK.
‘Punched in the stomach’
Norwegian Air’s CEO Jacob Schram, meanwhile, claimed Monday that he feels like government has “punched everyone at Norwegian in the stomach.” He said the government’s decision to deny more liquidity for the airline was “extremely disappointing,” especially “at a time when our competitors are receiving (aid) from their governments.” He specifically mentioned Lufthansa, Air France and SAS at a press conference Monday, but all of those airlines have been national carriers in the past, whereas Norwegian was founded by private investors who took huge risks on costly international expansion.
Schram claims that with more government assistance, Norwegian Air could emerge from the Corona crisis as a “more sustainable and slimmer airline,” with a new structure and better operations. He readily admits the airline needs economic support to survive the pandemic and get through the winter ahead.
He complained that the government, by denying aid to Norwegian, was essentially “rolling out a red carpet” for foreign competitors to enter the Norwegian market. “This opens the door for a Hungarian airline that the prime minister herself has said she will boycott,” Schram said, referring to the recent entry of low-fare carrier Wizz Air that’s sparked boycotts because it opposes organized labour.
Neither Nybø nor Transport Minister Knut Arild Hareide of the Christian Democrats party would specify exactly how much money Norwegian Air wanted, apart from saying it amounted to “billions.” Schram said he now couldn’t rule out anything, whether it be more layoffs, terminations or bankruptcy.
“This is challenging,” he said. “At the same time it’s important to say that we’re working hard to find a solution so we can survive.”