NEWS ANALYSIS: Bad news keeps flying around Norwegian Air, just as it’s trying to get off the ground. Customers still awaiting refunds for cancelled flights last year are furious over large bonuses paid to top executives that were agreed even while the airline was still in bankruptcy proceedings. Now the airline can also avoid paying tax on an earlier gain of NOK 4.5 billion and its reputation crash-landed on home turf in Norway, after Trade Minister Iselin Nybø issued a rare public scolding of a Norwegian company.
Nybø acknowledged earlier this week that the airline’s lawyers deny Norwegian Air violated its agreement with the state when it agreed to pay out the highly controversial bonuses, even though the airline had received crisis aid. “Norwegian insists that it has followed its legal obligations in its agreement with the state, and that state support has not been used for bonuses,” Nybø stated in a press release Tuesday.
“It is nonetheless extremely disappointing that they issue large bonuses (NOK 11 million each to new CEO Geir Karlsen and his predecessor, Jacob Schram) just as the company was released from the demands of the (state’s) loan guarantee program for aviation,” Nybø continued.
She went on to state in her unusually strong rebuke that paying out bonuses to top management showed a “lack of solidarity” with “Norwegian’s employees, customers, shareholders and creditors,” all of whom “stood up” for the airline when the Corona crisis made its already-severe financial problems even worse.
“That shows poor judgment,” Nybø continued. “The board (of Norwegian) and chief exceutive Geir Karlsen have a big job ahead in trying to clarify this and build Norwegian’s reputation up again.”
It’s not just the taxpayers who wound up as creditors during Norwegian’s “financial reconstruction” that won bankruptcy court approval and finally was completed in late May. Newspaper Klassekampen reported Thursday on how 34,000 customers of Norwegian Air are still waiting for refunds of tickets for flights that were cancelled last year during the Corona crisis.
“It feels like we’ve sent our money down the drain,” said Gudrun Høverstad, who had paid NOK 72,500 (around USD 8,000 at the time) for Norwegian Air tickets for a group study tour to Edinburgh in March 2020, just before Corona hit. Members of the group, now viewed as creditors along with many others, are currently only being offered refunds equal to 5 percent of what they paid.
“When we read that leaders of Norwegian have received fat bonuses, that wasn’t exactly what we thought our money would go towards,” Høverstad told Klassekampen. She called the 15-month process of requesting refunds for members of the group (all also members of a labour union who work for Norway’s waterways and energy directorate) “very frustrating.” Initial emails from Norwegian had indicated the members of Høverstad’s group would get refunds, only to later be classified as creditors during the bankruptcy process. When news broke in June that the “New Norwegian” was paying out a total of around NOK 30 million in bonuses to executives behind the process, Høverstad’s frustration turned to anger.
‘Astonishing and sad’
Inger Lise Blyverket, head of Norway’s consumer council (Forbrukerrådet), is also angry and upset with Norwegian Air. She has called the bonuses both “astonishing and sad,” especially when both Norwegian’s board and management “know that there are still customers who have not received refunds” for cancelled flights. A Norwegian Air spokesman claimed many customers in Norway have received refunds, but called refund demands “enormous” and admitted it “wasn’t possible for us … to pay back everyone. We’re sorry about that.”
There were few if any apologies from Norwegian Air lawyer Richard Sjøqvist from the powerful and expensive Oslo law firm BAHR when he replied this week (external link to Sjøqvist’s letter, mostly in Norwegian) to questions about the bonus payments from government minister Nybø (external link to the government’s own lawyers’ letter to Norwegian Air’s lawyers, mostly in Norwegian). He confirmed that bonus discussions began as early as December of last year but couldn’t be paid out until a restructuring of the company was in place.
He also notes that new investors in Norwegian Air (shipping tycoon John Fredriksen and heirs to the Sundt family fortune, among others) are paying out the bonuses now that they’ve taken over. It remains unclear whether the new investors were fully aware of the looming bonus payments, but they are behind the dismissal just two weeks ago of former CEO Schram.
‘Indefensible and misleading’
Nybø has claimed that the government’s attempted ban on bonuses applied until May 26, when Norwegian’s loans were converted to debt instruments. Sjøkvist claims the bonus ban hasn’t applied since December 8, according to a “reconstruction proposal” dated March 11. Not so, retorts law professor at the University of Oslo Mads Andenæs. He has called Norwegian’s lawyers’ interpretation of the government’s bonus ban “indefensible and misleading.”
As legal experts quarrel over the terms of the bonuses came news of a new creative justication for them. Newspaper Dagens Næringsliv (DN), which has devoted several pages a day to coverage of the Norwegian Air bonus flap, reported that Sjøkvist also wrote to Nybø that “central potential investors” had actually wanted Norwegian’s board to offer bonuses in order to secure the services of top executives through the reorganization process. He further claimed that both Karlsen and Schram didn’t want to accept the bonuses, but the now-departed leader of Norwegian’s board at the time, Niels Smedegaard, insisted on the bonuses, allegedly in order not to derail talks with new investors.
Neither Fredriksen nor Sundt family representatives responded to requests for comment on whether they’d wanted Norwegian’s top management to receive bonuses, but other new key investors including DNB Asset Management, the Norwegian pension fund Folketrygdfondet and Nordea Investment all told DN they had not made any bonus requests or demands. Kjetil Houg, leader of the pension fund, went so far as to call the bonuses “unreasonable.”
Both Karlsen and Schram remain mum and haven’t commented on the uproar over their bonuses. Norwegian’s new board leader, Svein Harald Øygard, referred questions to Norwegian’s communications department, which had no further comment.
On Thursday, meanwhile, Norwegian tax authorities won a verdict in the Oslo County Court that Norwegian Air should have paid tax on an earlier gain of NOK 4.5 billion, generated when the company moved large portions of its operations to Ireland in 2013-2014. The company had contended it wasn’t taxable in Norway but the court disagreed, ruling that Norwegian Air now owes the state around NOK 1 billion.
Norwegian quickly appealed, but because of the bankruptcy proceedings, Norway’s tax authority becomes a creditor like everyone else. Even if the state prevails in the appeals process, it will still only stand to get 1 percent of the taxable amount. Norwegian Broadcasting (NRK) thus reported that Norwegian lost its tax case, but will probably be able to avoid the tax bill.
The week’s developments raise more questions: “Why were the bonuses paid out if no one really wanted them?” mused commentator Bård Bjerkholt i DN. Even Norwegian Air founder Bjørn Kjos called the bonus to Schram “strange.” He thinks they should have been made in the form of a share plan, adding that he expects they’ll be cancelled by the new board. DN reported that the bonuses, earlier believed to already have been paid out, actually weren’t until last Friday, and then just a portion of them.