Norwegian Air hailed an offer of financial support from the government of Norway as “significantly increasing” its chances of survival as it attempts to exit insolvency protection by March.
But aviation analysts and Norwegian Air’s own investment prospectus cast doubt on the outcome even if the airline pulls off the latest recapitalisation.
The Norwegian government confirmed the offer of a loan on January 21, conditional on the carrier raising new capital.
Jacob Schram, Norwegian Air chief executive, suggested the government loan “significantly increases our chances of raising new capital and getting us through the reconstruction process. “
He said: “With a new business plan and participation from the government, we are confident we can attract investors.”
The carrier announced the end of long-haul operations and closure of its London Gatwick base last week as it seeks to pull off a second debt-for-equity swap in nine months.
This would reduce the airline’s debt to about €2 billion (NOK20 billion), and see the company raise up to NOK5 billion in new capital.
However, the Norwegian government’s statement on the potential loan was more cautious. It declared: “The government is positive about contributing money to a reconstructed Norwegian, but assumes that private investors show up.”
Trade and industry minister Iselin Nybø noted the airline’s new business plan involves “strong interventions in the company’s debt structure and the inflow of NOK4-5 billion in fresh capital” and said: “The government has said we can contribute with a hybrid loan if Norwegian succeeds with this [plan].
“But it is a demanding process and Norwegian is dependent on bringing in long-term and strategic owners. The state has no ambitions to become an owner of Norwegian.”
Transport minister Knut Arild Hareide confirmed the support would be tied to Norwegian’s operations in Norway, saying: “The goal of the government’s aviation policy is to ensure a good flight offer and strong Norwegian aviation market.
“We believe a reconstructed Norwegian can be an important player in Norwegian aviation.”
For the loan to go ahead, the government requires Norwegian to raise “at least” NOK4.5 billion in new capital and to win approval of the plan from existing shareholders and creditors who stand to lose out substantially.
Norwegian’s previous shareholders were wiped out by a £1-billion debt-for-equity swap last May which left them holding 5% of the airline.
Now Schram proposes doing the same to the current shareholders, leaving them just 5% of equity and creditors another 25% while seeking investors to purchase the remaining 70%.
Bernstein Research managing director and senior analyst Daniel Roeska noted Norwegian had been forced to restructure even before the pandemic and said: “A significant risk of bankruptcy remains.”
Speaking on a CAPA Centre for Aviation webinar, Roeska said: “Norwegian is barely flying and converting as much debt as it can to equity – to paper money. If you don’t agree to convert debt, you don’t get anything.
“The management need to let go of long haul but some of the larger equity holders are long-haul aircraft lessors. We are not convinced this will be a good story.”
Norwegian entered bankruptcy protection in Ireland in November and in Norway in December. The Irish process, known as ‘examinership’, provides protection from creditors for only up to 100 days.
The plan means the loss of 1,100 jobs at London Gatwick and more than 2,000 across the airline. The Unite trade union reported Norwegian workers are owed wages as well as redundancy pay.
Norwegian Air said customers with outstanding bookings “will be refunded”. However, documents provided to potential investors state only that Norwegian “will seek to establish a solution for customers eligible for refunds”.
The prospectus for investors notes the outcome of the latest rescue plan is “unpredictable” and warns: “It is highly uncertain if, and to what extent, the plan may be implemented.”
It warns: “If the company does not exit [bankruptcy protection] . . . in a successful way, it is highly likely the Company will enter into liquidation and/or bankruptcy proceedings during the first or second quarter of 2021.
“Even if the company should conclude the restructuring, there is a significant risk [it] becomes insolvent and enters bankruptcy [or that] it will be in non-compliance with its debt obligations.”
The Norwegian government provided the airline with NOK3 billion (£240 million) last May, but then turned down a further request for aid, declaring the carrier “a significant risk”.
It said the new loan would be at market rates of interest. Approval of the loan is required from the Norwegian parliament.