The future of Norwegian Air hangs in the balance after the airline failed to get a sufficient agreement among bondholders to a rescue deal for the airline.
Norwegian Air has warned it will run out of cash by mid-May unless creditors and shareholders approve a high-risk escape plan.
More: Thousands of Norwegian Air jobs threatened as subsidiary firms declare bankruptcy
Norwegian Air pursues £240m state aid guarantee
Norwegian Air reveals ‘profound impact’ of coronavirus
Bondholders were due to decide yesterday afternoon on the carrier’s proposal to swap debt for equity. But the airline sent a revised offer minutes before the start of the meeting and pushed back the deadline for acceptance to late Thursday night.
The carrier had already amended the terms of the proposed debt-for-equity swap in response to bondholders’ demands, reducing the amount of debt to be converted into shares.
In a statement, the airline said: “The revised proposal to the bondholders reflects that the company continues to make progress with its other stakeholders.”
Norwegian Air revealed late on Friday that although three out of four bondholder groups approved the debt-for-equity swap, it failed to secure the two-thirds majority required.
Just under this proportion, 62%, supported the carrier’s proposal.
In a statement, Norwegian Air said: “The company is continuing a constructive dialogue with bondholders to assess whether the required majority for approval of the proposal can be reached.”
Should the company win bondholders’ backing, the plan still needs the support of aircraft leasing companies and for shareholders to approve the proposal at an extraordinary general meeting on Monday (May 4).
Norwegain Air said: “The company has received strong support from lessors for a minimum conversion to equity of $550 million, which would satisfy the condition set out in the proposal to bondholders.
“The company intends to summon a new bondholder meeting to be held on Monday 18 May.”
The $1.2 billion debt-for-equity swap is required for Norwegian to secure NOK3 billion (£240 million) in state aid from the Norwegian government.
Norwegian warned it is “critical to get access to the state aid package by mid-May before the company runs out of cash”.
However, the bailout will only be enough to shore up the carrier temporarily.
Norwegian Air administration ‘would destroy value’
Norwegian Air chief executive Jacob Schram said: “Our dialogue with the bondholders continues with the clear goal of reaching a solution.
“Unfortunately, we were not able to reach an agreement within the deadline. However, discussion is continuing through the weekend to find a solution”
Norwegian Air warned this week that putting the airline into administration would destroy the value left in it and most creditors would receive little of what they are owed.
The debt-for-equity swap would leave aircraft leasing companies holding 53% of Norwegian Air in return for less than $500 million of the $3.1 billion they are owed. Bondholders would own almost 42% of the carrier in return for writing off less than $350 million in debt.
The carrier began the year with more than £4.8 billion in debt.
Current shareholders would be left with a little over 5% ahead of a further rights issue which would dilute their remaining holdings. The carrier conceded shareholders would be “wiped out”.
Norwegian also wants lease payments reduced by at least $4.2 million a month and to delay interest and other payments to creditors until July 2021.
Gatwick airport slots
Some of the bonds are secured against landing slots at London’s Gatwick airport, which Norwegian will lose without bondholders’ agreement.
Norwegian warned this week that most of its fleet would remain grounded for at least a year, leaving only seven aircraft flying in Norway.
If the carrier survives, it said it would cut its fleet by about one third once the crisis is over.
Norwegian Air declared four of its Scandinavian subsidiaries bankrupt last week and terminated the contracts of 4,700 pilots and cabin crew, more than 40% of its workforce.
The airline proposed the debt-for-equity swap after the Norwegian parliament voted through a new company restructuring law on April 24, relaxing the rules for converting debt to equity and reducing the proportion of debtors and shareholders required to agree to a restructuring.
Norwegian justice minister Monica Maeland said the legal change would make it easier “to sort out what parts of a business can be strong enough to survive”.