Monday, 4 May 2020

The Norwegian sun still shines.............shareholders back $1 billion rescue plan for a slimmed down 'New' Norwegian

Image  Norwegian
The major shareholders of Norwegian Air have backed a rescue plan by more than 95%, which will see the budget carrier convert of nearly $1 billion of debt into equity and raising more cash from its investors.

The airline was saddled with around $8 billion in debts prior to the current coronavirus COVID-19 crisis but had been making great strides in cutting costs and moving towards a profitable operation in recent months.  The new, revised debt to equity plan was of primary importance to the company in that it also opened the door to a Norwegian Government state aid package worth NOK3 billion.  The NOK 3 billion is assumed to be sufficient to cover the liquidity need until year-end, however, given the high degree of uncertainty on the current market situation, subsequently the exact liquidity need, including size and timing, there could be a need for additional funds to have sufficient liquidity until operations normalize.

The airline has said the deal has been agreed by the majority of its aircraft lessors, who are willing to convert at least $730 million of debt into equity, an increase of $180 million from previous agreements and talks are ongoing for possible further conversion. “With the significant contributions from lessors and bondholders, the company expects to convert more than 10 billion crowns ($958 million) in debt to equity,” the firm said on Monday. The shareholders also approved a new share-offering as part of the rescue package that will help the airline survive this vast economic downturn.

With around 95% of its aircraft fleet grounded, Norwegian has just been operating with a core fleet of 7 aircraft in the air that are performing government subsidised domestic routes in Norway.  Whilst many of those aircraft currently on the ground will eventually return to the skies in Norwegian's colours, a significant number may not. In a post-COVID world, the carrier expects to be operating a fleet of between 110 and 120 aircraft, down from a pre-COVID number of 168.   The airline will also refocus its operations with less emphasis on long-haul services, a dramatic drop in inter-European services not originating from the Nordic nations. It will also move away from trying out new routes and markets and concentrate on tried and tested destinations. Norwegian expects the majority of the fleet to still be grounded until the end of this year and possibility into the first part of 2021, with normal operations not starting again until the start of 2022.

Once all is confirmed and done, Norwegian will be majority-owned by its lessors and creditors, with the existing shareholders holding less than 6% of the company. 

According to Chief Executive Officer Jacob Schram, this process has been “one of the most suspenseful finance thrillers ever” speaking at the extraordinary general meeting, he also said it was “an incredible relief,” that the plan had been agreed before warning the firm has “a lot of hard work ahead.”. Indeed,  it is true,  the airline will have an upward mountain to climb to reach a point during the 2022-2023 season where it will start making a profit and will be heavily reliant on keeping a greatly increased number of shareholders happy.  If all goes ahead and the extra funding from the Norwegian Government is released, then the management of the carrier may soon feel the new normal is more about operating a diplomatic mission than running an airline. But, for now, there is breathing space,  the Norwegian sun is shining. 

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