Norwegian Air’s ability to survive the coronavirus crisis is reliant on efforts to restructure its debt and secure state aid, the airline has disclosed.
The low cost carrier, which has grounded 95% of its fleet and furloughed 7,650 staff, wants aircraft lessors and bond investors to swap their debt for equity.
The deal needs to be agreed at a special meeting of the airline next month to enable it to access Norwegian government state aid to keep the business afloat.
In a presentation to shareholders, the third largest airline at Gatwick said: “Norwegian needs to access the Norwegian state aid package of in total NOK3 billion by mid-May to manage the significant challenges of the current Covid-19 environment and prepare to gradually re-open its route network and bring back furloughed employees.”
But given the “high degree of uncertainty on the current market situation”, there could be need for additional funds until operations normalise.
Norwegian Air plans to go into “hibernation” over the winter low season “with a focus on cash preservation” as part of a restructuring plan.
A recovery period is planned during the summer high season next year with operations not back to normal until 2022.
But the carrier warned: “Even if the group is able to restructure its debt, it is expected that the group will still have a significant amount of debt, including substantial fixed obligations under aircraft leases and financings.
“The group’s ability to service such debt is subject to a number of risk factors, including the future effects to the group’s operations caused by the Covid-19 outbreak.
“The group has significant liabilities relating to aircraft acquisitions and may not obtain financing of such acquisitions. A failure to secure financing or to meet payment obligations under aircraft acquisition contracts may lead to a breach of contract.
“Such default may result in severe financial penalties, and make the group unable to take delivery of the acquired aircraft.”
The airline also faces increased hold-back of payments by credit card companies.
Norwegian Air said: “A significant part of the group’s customers pay with credit cards. A portion of the payment is received from the credit card acquirers upon booking and the remaining upon travel.
“The credit card companies have, due to the group’s financial situation, increased the hold-back of payments, resulting in a negative impact on the group’s cash flow over the past quarters.
“Although the group now believes to be at a peak level, there is still a risk that the credit card companies may further increase their hold-back with an adverse effect on the group’s liquidity.”