Norwegian Air Subsidiaries File For Bankruptcy

Filed Under: Norwegian

Airlines around the globe are fighting for survival at the moment. Even the (previously) most profitable airlines are struggling, while those that were on the brink of liquidation going into this are in an even worse position (except Alitalia, because that airline has more lives than a cat).

From South African Airways to Virgin Australia, things aren’t looking good…

Norwegian is hanging on by a thread

Norwegian has been on the verge of liquidation for a long time. Until last year the airline was focused exclusively on growth over profitability, as it seemed like the airline was trying to become an attractive acquisition target.

While British Airways was interested a couple of years back, Norwegian overplayed their hand, and it has been all downhill for the airline since then.

Norwegian has made a lot of difficult decisions and is generally headed in the right direction, though in light of the current situation it may be too little too late.

The airline may be getting some aid from Norway, though it remains to be seen if Norwegian meets the criteria for receiving the full aid.

Norwegian subsidiaries file for bankruptcy

Norwegian Air has some creative (questionable?) employment contracts to minimize costs, and as part of that, we’re seeing several Norwegian subsidiaries file for bankruptcy.

The following four Norwegian crew subsidiaries have today made the decision to file for bankruptcy:

  • Norwegian Pilot Services Sweden AB
  • Norwegian Pilot Services Denmark ApS
  • Norwegian Cabin Services Denmark ApS
  • Norwegian Air Resources Denmark LH ApS

This represents a majority of the Norwegian staff employed in Denmark and Sweden, due to the lack of financial support these countries have provided.

We’re not seeing the same in Norway, which is because there are efficient furlough opportunities, meaning the government pays all salary related costs throughout the duration of the furlough period.

Norwegian has also notified OSM Aviation that they are cancelling the crew provision agreements with several jointly owned OSM Aviation subsidiaries, including for crews based in Finland, Spain, the United Kingdom, and the United States.

The above will impact 1,571 pilots and 3,134 cabin crew. Meanwhile about 700 pilots and 1,300 cabin crew based in France, Italy, and Norway, aren’t impacted by this.

As Jacob Schram, Norwegian’s CEO, explains:

“The impact the Coronavirus has had on the airline industry is unprecedented. We have done everything we can to avoid making this last-resort decision and we have asked for access to government support in both Sweden and Denmark.

Our pilots and cabin crew are the core of our business and they have done a fantastic job for many years. It is heart-breaking that our Swedish and Danish pilot and cabin crew subsidiaries now are forced to file for bankruptcy, and I’m truly sorry for the consequences this will have for our colleagues. We are working around the clock to get through this crisis and to return as a stronger Norwegian with the goal of bringing as many colleagues back in the air as possible.”

What does this mean in practice?

A lot of airlines have struggled with how to handle paying staff in light of the current situation. For example, in the US a condition of government aid has been continuing to pay employees, even if they’re not working.

In the case of Norwegian, their staff are primarily employed through subsidiaries, and one of the advantages of that is that they can pretty easily lay off their staff without bigger implications for the company.

Unfortunately this will leave a lot of people without jobs. I would imagine that as Norwegian sees it:

  • They’ve managed to shed some costs while still maintaining their assets
  • They’re still hoping for aid from Norway, and as of now they haven’t laid off any employees in Norway
  • It probably won’t be too hard for Norwegian to rehire the employees who were laid off through this arrangement in the event that the airline does make it through this

Bottom line

This is awful news, as about two thirds of Norwegian’s pilots and cabin crew are being laid off. While the airline as such isn’t filing for bankruptcy, four subsidiaries are, giving the airline an “easy” way to shed a majority of their workforce.

This is sad, though in reality Norwegian’s survival is doubtful at this point no matter how you slice it, so chances are this was going to happen one way or another…

Comments
  1. This was due to the fact that they cannot lay-off their staff in Denmark or Sweden efficiently; they had to terminate the local operations.

    Norwegian continues to “operate” in Finland and they have been able to lay-off the staff; the staff is receiving normal Covid-19-inspired unemployment benefits.

  2. I understand why keeping staff in Norway -as the Norwegian government will pay the staff salary during the furlough- however not sure why Norwegian kept France and Italy staff?
    Does France and Italy have small transatlantic operations/staff and Norwegian want to keep a crew skeleton crew ready in case they fly again soon? Not sure ….

  3. Living in Seattle, I will miss their non-stop flight to London. For about $200 more than just the taxes on a BA award ticket, you’d get a totally fine (for a daytime flight) premium economy seat. I’d even say if you’re not going to sleep, it was nicer than the 8 across BA business and you didn’t have to be beholden to award availability.

  4. At least they won’t be needing all those parked maxes. But Norwegian have had terrible luck when it came to their reliance on 737 max and 787 engine faults. What will happen to all the almost new 737 Max, now that demand is so much lower?

    Who would have thought in early 2018 many of the brand new Max might never fly again.

  5. If Norwegian gets through this I will be shocked. They’ll have some of the most lenient creditors in the world if they choose to accept the current deal of making the entire airline worthless just to raise enough equity.

  6. If they do not make it who will assume the 60bNOK in credit losses assuming that there will be no buyers for there -800 s ? Pensioners ?

  7. So what does this mean for those of us waiting for refunds on canceled flights? I charged it on my CSR.

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