Norwegian Gets Government Aid, With A Catch

Filed Under: Norwegian

The current global situation is unprecedented, in particular for the tourism sector, as borders have closed and people are avoiding traveling as much as possible.

What’s interesting is the impact this situation has had on airlines that have been on the brink of collapse before this all started.

You’d think the first thing to happen would be for those airlines to go out of business, but many of those airlines have actually been helped by this situation — Alitalia is being renationalized, South African Airways’ leadership argues this situation has helped the company, and now Norwegian is seemingly getting yet another lifeline.

Government of Norway to provide funding to Norwegian

The government of Norway is offering a conditional state loan guarantee of 530+ million USD to airlines. With this proposal:

  • 50% of the funding would go to Norwegian
  • 25% of the funding would go to SAS
  • 25% of the funding would go to Wideroe and other carriers

Norwegian’s CEO, Jacob Schram, has indicated that this packaged is crucial to the company’s survival. As he explained:

“We have been clear that we need liquidity, and we are grateful that this is what we are now being offered.

We have to spend some time to familiarise ourselves with the conditions, but we can guarantee that we will do everything in our power to meet the requirements.”

How Norwegian’s new funding would work

Norway is attaching quite a few conditions to this, though, including a minimum 8% equity requirement, which Norwegian doesn’t have. Therefore Norwegian won’t initially get anywhere close to the ~265 million USD they may eventually get.

Rather the funding would come in three stages, with quite some conditions:

  • For now the company would only get ~28 million USD
  • Once Norwegian achieves a reduction in interest and repayments to creditors, it would receive a further ~111 million USD
  • The remaining ~139 million USD would be given to the airline once Norwegian improves solvency to satisfactory levels

Obviously the government recognizes that Norwegian had financial challenges before this global pandemic charges, so a lot of that funding is contingent upon shareholders and lenders contributing to Norwegian’s viability.

The government of Norway is also requiring that airlines offer a certain number of flights within Norway to get this funding, so routes would be assigned to airlines by the government. It’s not yet clear exactly what that would look like.

Bottom line

Norwegian is one of those airlines that was already on the brink of collapse before this all started. Following this situation, the airline has canceled all long haul flights and has laid off 90% of employees.

It will be interesting to see if this funding does anything substantial for Norwegian. While they will almost certainly get some funding, the bulk of the funding relies on the airline getting concessions from creditors and being in a better financial situation.

I hate to see any people lose their jobs, though in the case of Norwegian I can’t help but wonder how much longer this can go on. Even during the best of times the airline was losing massive amounts of money. While they’ve made some improvements, it’s questionable if the airline could make money during good times, let alone during bad times…

Comments
  1. Yeah some of these airlines asking for bailouts and blaming the Coronavirus for their dire position really is reminiscent of the whole “Don’t blame the holidays, you were fat in August” comments.

  2. Maybe they can refund flights cancelled now rather than credits, some people can’t rearrange one off travel trips.

  3. I have to say, this article was quite a disappointment. Such unwarranted skepticism…many factors outside of Norwegian’s direct control contributed to their former dire straits. And while I don’t have the figures at my fingertips at the moment, but before this happened, Norwegian *was* having profitable months, and in the middle of a financial turnaround.

    Their core business, and strategy, is viable. It is worth saving. Who could have possibly seen this coming…and why on Earth would Norway *not* help? It’s a no-brainer.

  4. This is an unhelpful article. Norwegian were voted best European short haul airline for many years. It is not their fault that the engine troubles with the Dreamliner and grounding of Max 8. No compensation from Boeing yet either.

  5. Norwegian has a new CCO and CEO along with the CFO who started the company’s turnaround.
    2020 was forecast to bring the company back into the black after years of expansion.
    They have been terribly unlucky with RR and Boeing.
    If they get through this the airline will get through anything.

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