Norway Denies Aid To Norwegian Air: Game Over?

Filed Under: Norwegian

Norwegian Air has been on the brink of liquidation since before the pandemic started, though suffice to say the current situation has only exacerbated issues.

The airline has done everything it can to improve its financial situation, though that only goes so far. In August the airline announced it would run out of cash by the first quarter of 2021 at the latest without further funding.

Norwegian Air had one last hope, and it seems that’s now off the table…

Norwegian Air denied bailout by Norway

Earlier this year, Norwegian Air got a loan backed by Norway’s government that was worth $340 million. This was possible thanks to a debt-to-equity swap with an aircraft leasing company, which was a condition of securing this funding.

Several weeks ago it was revealed that Norwegian Air was in discussions with Norway’s government once again over further government funding. The possibility of the airline being nationalized was even thrown around.

Well, it looks like that’s not happening. Norway has today announced that it won’t provide any further funding to Norwegian Air. As Norway’s Industry Minister, Iselin Nybø, describes this decision:

“It is a tough message to get. But we are answerable for the responsible use of public funds. Norwegian Air has a financial structure that makes it risky for us to go in with support. It was not defensible.”

That seems fair enough to me. Norwegian was at risk of going out of business before the pandemic, so pouring even more money into the airline probably isn’t a great idea.

Norway won’t provide Norwegian Air with more funding

Norwegian Air calls this a “slap in the face”

Following this news, Norwegian Air has expressed that it’s “very disappointed” in the lack of help from Norway, and states that this feels like a “slap in the face.” It notes that this help was necessary to maintain operations throughout the coronavirus pandemic, and that the company is “now facing a very uncertain future.”

All of that is fair enough.

What I can make less sense of is some of the commentary from Norwegian Air CEO Jacob Schram:

“We are called Norwegian, We are Norwegian. We are a part of Norway and Norway is a part of us.”

Look, I get Norwegian is trying to play up the patriotism here to get aid from a particular country, but let’s not kid ourselves. Yes, the airline is called Norwegian, but it largely stops there:

  • Only a small percentage of Norwegian’s transatlantic flights have been from Norway, with most being from other countries, ranging from France to Greece to Spain to the UK
  • This is an airline that has taken advantage of every European business opportunity (some might say “loophole”), as it has registered planes in Ireland, hired crews from Thailand that make a fraction of what colleagues in Europe made, etc.

There’s nothing inherently wrong with that, but I also don’t think Norwegian is really in a position to pretend it’s the wholly focused on Norway as a country.

Schram goes on to note how the airline sustains many jobs in Norway, creates competition, and serves some unique routes. He suggests the following:

“That alone clearly demonstrates that even moderate financial support, would constitute a profitable investment for Norway. How anyone could come to a different conclusion is impossible to understand.”

I really don’t think it’s that hard to understand. Unfortunately Norwegian has just become a bottomless money pit. I totally recognize the airline was working on a turnaround pre-pandemic, but it’s just too little too late.

The airline is so incredibly leveraged that there’s such little upside at this point, and frankly an airline would be better off just starting from scratch.

“Moderate financial support” would “constitute a profitable investment?” How long does Schram think this support would last, and then what?

I think Norway’s Industry Minister is exactly right — this isn’t about whether aviation in general is worth supporting, but rather that Norwegian is just too risky of an investment, and the government shouldn’t be throwing money into something that has little chance of surviving.

Can Norwegian Air find a new funding source in the next few months?

Bottom line

Norwegian Air has some great employees, and I hate to see people lose their jobs. For that matter, Norwegian has been great for competition, offering a low cost but fun experience that passengers have grown to love.

But that doesn’t undo the reality of Norwegian’s business. The airline was run like a tech company for years, focused exclusively on market share over profitability. Then British Airways wanted to acquire it, but Norwegian got greedy. While the airline then finally started to focus on the right things, it was arguably too late.

At this point Norwegian is ridiculously leveraged, and I can’t blame anyone (whether a private investor or government) for not wanting to throw more money at the airline. Norwegian has already had more lives than a cat…

What do you think, is this finally the end of Norwegian, or will the airline find a new way to stay in business?

Comments
  1. There was a time when Norwegian was pretty lucrative and if I’m not wrong IAG did bid for Norwegian, but Norwegian had turned it down, I bet they regret it now.

  2. The Norwegian taxpayer helping to keep Norwegian flying from Paris to the US clearly makes no sense. However I would have thought that Norwegian provides good competition in Norway’s domestic market which does benefit its citizens. Why not make Norwegian a domestic airline and when it’s profitable, then think about expanding again.

  3. Regarding competition in Norway, Norwegian has lost that argument a few weeks ago when WizzAir started flying domestic as well. WizzAir plans to expand over 2021 too. So there is competition in their home market even without them. Talk about wrong timing.

  4. Let it go bankrup, the 95% owners, mostly international leasingcompanies and financing companies will lose some billion NOK on top of the 15 already lost. Restructure down to 12 planes for domestic service. No routes paid by the state and compete with others in equal terms domestic. The only way out. When their own shareholders refuse to finance it, the game is over. It should have ended 2018 with enormous debts and year after year with huge losses

  5. In their defense, they had a lot of bad luck between the 787 engine issues and then the MAX. They did over-expand, and too quickly. It’s a shame – they were a really fun airline and even for being a LCC, it was a pleasant experience. Being in the NY area, I loved flying them out of Stewart.

  6. Why should taxpayers subsidize cheap flights? Since deregulation the airline industry constantly
    shoots itself in the foot. There’s the business model to fill seats at any fare and hope that one can fill the plane to brim, generate enough in fee income and non flying revenue and cut enough costs. It doesn’t take much for that model to be turned on it’s head.

    Until this industry can learn to practice rationalization and stop shoving people into an a/c like they are cattle this cycle will repeat itself. Giving bailouts only allows the cycle to repeat.

  7. Was amazing to see so many Norwegian 787s at LAX. Then they started their operation in Argentina
    It’s sad however will only benefit the legacy carriers

  8. As a former Norwegian employee who was based in the US, I don’t know much about taxes, financing or expanding.
    With all the ‘enemies’ Norwegian had in the aviation industry, all the accusations of flag of convenience etc,
    I do know few things for sure. Norwrgian introduced an amazing product for an unbeatable price.
    As Norwegian core values are
    to offer affordable fares for all and to allow customers to travel the smart way by offering value and choice throughout their journey.
    Young, energetic and professional crew, professionally trained for safety and hospitality made Norwegian carry more pax then any other airline flying from Europe to the US.
    Norwegian is needed, low cost carrier from Europe to the US is a must.
    Last thing , all Norwegian employees that were based outside Norway, were proud representing Norway regardless of the home base. We all became an ambassadors of this beautiful country.
    Norwegian is a well deserved and needed player in the market.

  9. And the sad part is that their Norwegian domestic operation was probably profitable, and quite possibly the other Nordic short haul ops as well.

    It was the long haul ops that broke them, and because the corporate structure is so convoluted and the domestic ops probably having been leveraged to the max saving the functioning parts might not be possible.

    Norway not having anything like Chapter 11 laws won’t help either.

    So I guess it’s so long Norwegian and thanks for the memories.

  10. Basic business. Not every company will survive, and as they were a “pig” and did not take what they could get. Well, that’s the risk you take.

  11. Norwegian is a lousy airline and I will be glad to see the Airline liquidated.

    – having Airline Passengers at each of Norwegian’s Scandinavian Hubs, stand or sit on the floor outside their immediate boarding area until a few minutes before getting on the plane, is completely unacceptable.

    – Having to wait a few hours on the ground after a Trans- Atlantic flight because this Airline is too incompetent or lacks the financial resources to get a landing gate assignment, is completely unacceptable.

    – Acting as a “Pop Up” Airline, flying into cities for a few months, then permanently stopping, is completely unacceptable.

    – Having a Check In staff that is rude and poorly trained, and seems to take pleasure denying late passengers boarding with out providing any additional assistance, is completely unacceptable

    Norwegian is a poorly managed airline the World would be better off without.

  12. As a Norwegian tax payer, I am happy our government is not throwing good money after bad. Mr Kjos suffered from hubris, and this will be the airline’s downfall. I attended a presentation by him not long after they inked the deals for 200 shorthaul aircraft and their longhaul launch was a right real mess.

    Norwegian serves an important function in the domestic market, and investors might pick up that division at the right price. Unlike most other European countries, our geography and demography requires air transport. There are plenty of domestic flights longer than 90 minutes, or where ground transportation takes 7 hours or more whereas flying is 45 mins. On top of that, mountain passes are often closed during winter.

    Personally, I would rather put my money on the new Braathen venture. Clean slate, cheap aircraft and plenty of competent professionals available. Hopefully they will resurrect the Braathens name and not go for one of those stupid LCC names. And no – many people, organisations and companies will not choose Wizzair due to social dumping. Bringing in east and south European crews being paid poverty wages has even led the prime minister to say she will avoid that airline.

  13. As frequent fliers to Europe. We loved Norwegian. Always left on time, clean, great staff and affordable! It’s sooo sad to see them go!

  14. I love(d) Norwegian, and took great pleasure in passionately telling friends and colleagues just how great they are. I flew them as recently as February from London to Miami, and have always had fantastic flying experiences.

    With a fair wind and none of the problems they’ve encountered in recent years, they could have become genuinely sustainable – but it wasn’t to be, and I’m having to accept that my favourite airline is probably in terminal decline.

    It will be interesting to see where the 787s go – part of me hopes to see easyJet or even WizzAir have a shot at mainstream low-cost long-haul operation from Europe, but let’s not get ahead of ourselves!

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