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.
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?