Norwegian Relies On Bond Extension To Survive

Filed Under: Norwegian

Over the past couple of years we’ve seen quite a few airlines collapse, particularly low cost airlines in Europe. Norwegian is an airline that just seems to be hanging on by a thread for quite a while now.

At the beginning of the year the airline announced a restructuring and new funding, though realistically that will only get them so far. In addition to their questionable business decisions, they also haven’t been very luck in terms of their fleet consisting largely of 787-9s and 737 MAX 8s, as both of those aircraft type have had major issues.

Well, now Norwegian is facing their latest major situation, which they describe as part of their strategic plan from growth to profitability and cash generation.

Norwegian is asking for an extra two years to repay their largest outstanding bonds, which are worth about 380 million USD. They’re requesting an extension for these two bonds to November 2021 and February 2022, and in exchange they’re offering a security package consisting of a pledge over all shares in Norwegian Air Norway.

The reason this might interest bondholders is because this includes the takeoff and landing slots that Norwegian has at London Gatwick Airport, which they claim are worth more than the value of the bonds. As Norwegian describes it in their press release:

Norwegian’s Gatwick portfolio currently consists of take-off and landing slots which has an independent valuation from a well-reputed third-party in excess of the current nominal bond value for NAS07 and NAS08 of USD 380 million. These are important operational rights for the Norwegian Group, facilitating the feeding of passengers between our European short-haul network and intercontinental long-haul network, an important part of Norwegian’s profitability strategy going forward. Previous transactions in the market demonstrate the ability to monetize on slots at Gatwick.

Let’s keep in mind that we’re just wrapping up the busy summer travel season, which is by far the best performing time for Norwegian. Norwegian acknowledges their need to build up liquidity reserves before the winter season.

The company also says they have ongoing discussions with lessors with the goal of deferring payment schedules. Discussions with aircraft and engine manufacturers are ongoing as well, with the goal of significant liquidity ease.

Bottom line

While Norwegian is making some progress, the grounding of the 737 MAX and ongoing problems with the 787-9 have proven problematic for them. Furthermore, no matter how much they shift from growth mode to profitability mode, it’s questionable how sustainable their business model even is.

I’ll be curious to see not only if Norwegian manages to get an extension on their bonds, but also what this upcoming winter looks like for them. Winter is really weak for transatlantic travel, so the company has an uphill battle ahead of them.

Do you think Norwegian will make it to 2020?

Comments
  1. How much money are they losing on their long-haul division? Maybe they could ax that and focus on Scandinavian and leisure routes.

  2. I have a flight from LGW to JFK scheduled for early December on Norwegian. Should I be looking into alternative flights?

  3. I have flights to Copenhagen, Barcelona, and Chicago through them in 27 days. I just need them to hang on for the next two months…that’s all I ask.

  4. Norwegian Air should ask a lot of money in compensation to Boeing and Rolls Royce… They have made Norwegian Air business even more critical.

  5. I don’t think they’ll make it to November let alone 2020. If I were a bond holder I’d pull the plug now and get it over with. Their business model is not sustainable and no amount of additional time or money is going to change that.

  6. Their TATL business model is not sustainable. It’s only beneficial for direct connection like London-New York but as soon you don’t live close to one of their hubs it gets unattractive. All the legacy carriers are offering very cheap flights, often with a short layover for a similar price and with a better operations history track. I would never chose Norwegian. Really never.

  7. We have since something similar before…..airlines offering long haul low-cost trans-Atlantic/trans-continental flights not succeeding long-term. For example, Zoom, Laker Airways, Air Europe, People’s Express, WOW , etc.

    Would Norwegian be away to break that “spell” and create a miraculous new outcome for low-cost transatlantic/trans-continental flights? It could happen, but it’s gonna be quite a challenge.

    Someone suggested Norwegian should just discard its long-haul services and concentrate on its more profitable(?) European services. Maybe he/she has a point.

  8. …sorry, typo error, should have said “We have seen something similar before”, instead of “We have since something similar before”.

  9. Norwegian can’t seem to catch a break. To be fair, they’re lasting longer than I thought with everything that’s been thrown at them from 737 max grounding to RR Trent 1000 engine issues.

    I wonder if we will ever see TATL flights from the likes of Ryanair; cramming plane to maximum capacity and offering absolutely dirt cheap fares like €50 one way- it’s quite common to see Ryanair flights for €5-€10.

  10. This interests me greatly as someone who has FCO>EWR on Norwegian coming up in November. Wont be a cheap flight to rebook last minute if they collapse.

  11. This is a joke – no investor in their right mind should give these idiots more time to burn cash. Call in this debt and auction the Gatwick slots.

    Norwegian has NEVER turned a profit since they launched long haul flying. Blame Boeing all you want but truthfully this airline was the most leveraged, indebted carrier in the world before the 737 and 787 issues, becuase their business model valued market share over any eventual profitability.

    How much more money can they vaporise before people realise how idiotic their plans were? You can’t make money by selling a product below cost, no matter how high the volume, obviously.

    In the process, they have made the long haul experience worse for everybody by forcing the legacy carriers to “compete” with a business model that consisted of borrowing money and spending it to subsidise passenger travel without ever profiting….

  12. No i don’t think they ll make it to 2020.
    It s ok to fly with low cost airlines like RyanAir ,Easyjet ,Transavia etc for 2 hours within Europe as there are millions of low income passengers in Europe but when it comes to long haul ,most people who fly long distance are wealthier than those who only travel within Europe so they want a bit of comfort,food ,drinks & entertainment.
    Air France offers return tickets which cost $300 for a Paris-New-York WITH food drinks etc included so why choose Norwegian and pay for your food,drinks ,luggages etc
    That’s why they were never popular enough to sustain a profit.
    Moreover Jetblue will start operating between the US & Europe and their service on board is much better so it will laminate Norwegian Airlines completely.
    The Boeing 737 Max fiasco is just Norwegian Coup de grâce bu Iceland Wow Air went bust without any order of Boeing 737 max.

  13. I was hoping to try them for a US-EU trip, but ended up spending miles, I just can’t afford the uncertainty with this trip. A shame, I would have liked to try the 787. Unfortunately if they go down it’s nothing more than a bid for the majors to jack up transatlantic fares.

  14. I wish I knew this before booking with them in March for a trip I just returned from. Avoid this airline at all costs. They delayed and canceled three flights the day I was scheduled to return home with barely any communication or assistance to passengers. In fact they went out of their way to avoid us and deflect to a nonfunctional hotline and website. It’s very shady and suspicious and I can’t get any information from them about the refund I am owed.

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