Norwegian Air About To Run Out Of Money (Again)

Filed Under: Norwegian

At this point I’m not sure whether to commend Norwegian Air’s management for being persistent, or wonder why they don’t just throw in the towel already…

Norwegian Air’s rough journey

Norwegian Air has been a favorite among travelers, as it’s an ultra low cost carrier with an all around good customer experience. There are only four problems:

  • The low cost, long haul business model doesn’t work
  • Norwegian was for too long focused on market share over profit
  • Norwegian was very unlucky
  • The coronavirus pandemic has destroyed the airline industry

The reality is that Norwegian was on the brink of liquidation even before the pandemic started.

The airline spent years building up market share. After a failed investment by British Airways, and when airline financing became harder to come by, the airline switched its focus from growth to profitability.

While Norwegian made some positive changes, the airline was also extremely unlucky. Norwegian’s fleet consists exclusively of 737s and 787s:

  • The 737 MAX played a vital part in Norwegian’s fleet, and that plane has been grounded for well over a year
  • Some 787-9s have had serious engine issues, meaning that for the past couple of years many of Norwegian’s long haul flights have been operated by leased planes

The airline was on the verge of collapse when all of this started, and then of course things got way worse with coronavirus. And that brings us to the current situation…

Norwegian has had to lease planes due to 787-9 groundings

Norwegian Air at risk of insolvency

As reported by The Wall Street Journal, Norwegian Air has today warned of a “significant risk” of becoming insolvent in the first quarter of 2021, because the airline lacks the cash to meet short-term obligations. The only way the company will be able to survive is if it can raise more money from the market.

But at this point it seems highly questionable how the airline plans to get additional funding:

  • Norwegian’s stock is down 97% for the year
  • Norwegian’s shareholders were heavily diluted in May, due to the conversion of debt into equity, which was required in order for Norwegian to be eligible for government loan guarantees, which kept the airline in business
  • Due to that conversion of debt into equity, Norwegian’s largest shareholders are the aircraft leasing companies that are leasing Norwegian planes
  • Therefore the airline doesn’t have much leverage or many assets to raise additional capital, especially given the gloomy outlook for the industry
  • Norwegian has about ~57 million USD in cash left, and it’s burning around ~5.7 million USD in cash per month (a vast majority of Norwegian planes are grounded, and the airline isn’t operating any long haul flights)
  • Logically an airline would want to return as many planes as possible to leasing companies, but since leasing companies are the largest shareholders and don’t have any other uses for the planes, they’re also not in favor of that
  • For the airline to have any chance of survival, the focus would have to be on growing in the Scandinavian market, where the airline has historically been profitable; however, in times of coronavirus there’s also limited potential there

Norwegian needs more cash to stay in business

Bottom line

As much as I appreciate the competition that Norwegian has provided in the market, I just don’t see any path forward for the airline. At this point the company’s biggest shareholders are aircraft leasing companies, which makes raising more money even harder.

With global travel by some estimates only expected to recover in 2024, the airline may need a lot more money to stay in business.

Do you see any path to survival for Norwegian?

Comments
  1. Sadly not likely to survive. I had a great flight from LGW-SEA a couple years back. Paid for $45 extra for bulkhead and had way more room than on BA premium economy all for about $275 OW.

  2. Long haul, discount airlines don’t work. Air Asia X and Norwegian Air just prove the point. Southwest and Ryan Air would have done it years ago if it made sense but it doesn’t. Does any one remember Freddy Laker? Let’s stop the madness and throwing out good money. Long haul needs a network and major support with classes of service to be successful. Short haul can do the cheap, point to point but not beyond that. When will people learn.

  3. It truly pains me saying this, but at this point, it’s just a waiting game to see who can survive the longest. There will be massive job losses but the industry is so completely over saturated with discount airlines and airlines in general. So many companies providing the exact same service – not service standards but transportation from point A to B. Expect way more of this.

  4. The one good thing comes out of this is elimination of over-tourism in popular destinations. Now obviously there is no over-tourism anywhere. But when covid goes away, there will be more sanity in places like Venice, Iceland, Santorini, Machu Picchu, etc…. until rise of low cost carrier again!

  5. Please look up the Norwegian Sovereign Wealth Fund. It is a government fund for the Norwegian people derived from oil revenues. Norway is the Saudi Arabia of Europe. The wealth fund is close to one trillion dollars in value. Norway is swimming in cash. The Norwegian government can well afford to bail out Norwegian Air for years to come. Whether it chooses to do so is another question.

  6. Their $600 premium economy seat was good enough from LGW to SEA during the day when I wouldn’t sleep anyway. Less than the points redemption cash surcharge on BA for a business class seat and didn’t have to worry about availability.

    Sorry to see their likely demise.

  7. @Paul, There’s nothing particularly Norwegian about Norwegian Air other than the name. The government and people of Norway aren’t bailing them out. They have SAS.

  8. I’m honestly astonished they are still operating now given their position prior to Covid. I think many airlines are hoping for bookings to pick up in Q2 2021 but if not, we will see some serious transformation in the industry. Who survives will be down to which governments are prepared to put up x amount of billions to keep carriers solvent. The airline landscape is going to change immensely over the next 12 months.

    Personally, I don’t see Norwegian making it passed April/May 2021.

    Most airlines are talking about a 4-5 year recovery. I’m seriously wondering if we’ll be into the early 2030s before everything is back to 2019 levels. I certainly hope I’m wrong though.

  9. @Paul L @Jimmy

    Second what Jimmy said about Norwegian Air Shuttle not being very Norwegian, most of their operations are in other parts of Europe. Only about 20 of their 737 were based in Norway before all of this started, there was very limited 787 operations out of OSL. Biggest 787 base was likely LGW.

    While a lot of Norwegian tax payers would probably like to keep Norwegian Air Shuttle as second choice for domestic flights, I sincerely doubt they are willing to pay for a loss making discount airline based in LGW. For what I have heard only about 2000 of 12000 jobs in Norwegian Air Shuttle was actually in Norway.

    And the Nor Gov does not have SAS Jimmy, that is a Swedish airline with their main base long haul base in Denmark.

    Even if they have a large domestic operation in Norway. Denmark and Sweden will probably pay to keep them going even without Norway.

    Most NorGov will likely do is to financially guaranty a certain number of domestic flights as needed infrastructure due to Norway’s rather rugged geography and bad winter weather make road traffic a less good choice.

    The only airline that is truly Norwegian and difficult to replace is Widerøe due to their short field capable turbo props..

  10. Time for BA to buy it at a rock bottom price and start another low cost airline on the cheap. Then BA itself can just fly from LHR leaving Norwegian at LGW

  11. This is a bummer. Their direct flight from MCO (my home airport) to Paris was my go-to to get to Europe (and they often had good deals on the premium economy seats). Hope they can pull through, but that seems unlikely.

  12. Norwegian is nowhere near an ultra low cost carrier. I has a 2 class ticket system and a 2 class cabin on many of its planes. It do not either practice free seating and its cost per pasenger was over 100 Euro last year plus it lost 2 euro for every passenger it carried.
    It is more a low price trying to be a low cost but with a litle bit of service, like Easyjet. So costwise far from the likes of Wizz, Ryanair or Southwest. Not that it couldn’t become a ultra low cost, and the first real such within long haul, but that would proably require a new management with real experience from that type of environment.

  13. People who think Norwegian will collapse don’t understand the Scandinavian market. Norwegian will be unable to collapse because they’re the only competition to SAS, apart from Widerøe & Braathens which are both very small regional airlines in Norway & Sweden. The Norwegian government will prop up the airline because without Norwegian there is a serious impediment to travel choices for travelers in Norway, Sweden & Denmark. After a few years when the airline industry recovers, Norwegian will start to look at long haul again but they’ll never be out of business.

  14. Norwegian will survive. They will get the money they need from their shareholders (the leasing companies) , and more help from the Norwegian Government.
    They are an important part of the infrastructure in Norway. And they are a huge employer in Norway.
    I would be more worried if SAS survive. They still haven’t been able to secure a deal with the Danish and Swedish governments. Both part-owners in SAS. They didn’t have the votes for the rescue package, presented on the 30th of June. (Norwegian Gov. sold their stock in SAS some years ago, and are not part in the rescue package.)

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