How Norwegian Air hopes to prevent a collapse

Norwegian Air has plans in place to prevent the collapse of the airline in 2021. The airline seeks to secure additional funding by the end of 2020. Funding needs to be sufficient for the next 18 months or more to see it through the coronavirus pandemic.

In May of 2020, Norwegian completed a restructuring that saw creditors and lessors convert debt to equity while also raising cash. In effect, creditors and lessors took control of the airline. That qualified the airline for a NOK 2.7 billion (about USD 300 million) Norwegian government-aid package.

The first round of funding was not enough

“Given the current market conditions, it (the funding) is not enough to get through this prolonged crisis,”

Chief Executive Jacob Schram said in a statement. Schram also told Reuters on the sidelines of a news conference that,

“It needs to be completed throughout the autumn. The solution must be in place this year.”

Norwegian reported first-half year losses of about 610 million U.S. Dollars.

Not a crisis – yet

Chief Financial Officer Geir Karlsen said,

“The company is not currently strapped for cash, (but) it (the company) needs money during the next six to seven months”.

“The target for us should be to not just put out fires, but one where we can see all the way into 2022,”

Karlsen concluded.

Norwegian remains optimistic

Norwegian Air hopes to return to normal operations in a post-pandemic era by 2022 if the cash can be obtained.

This Norwegian-produced video, “Norwegian’s U.S. cabin crew during training”, was produced before the COVID-19 pandemic hit, showing flight attendant training at the Pan Am International Flight Academy in Miami, Florida. YouTube.

With an optimistic attitude, the airline’s management has said it expects to obtain the needed further financing through:

  • Placement of private shares.
  • Sale of assets (Norwegian is planning on selling off about half its Boeing 787 Dreamliner fleet).
  • Revising the business plan for a “Phase 3”.
  • Work with aircraft leasing companies for solutions and arrangements.
  • Greatly reduced schedules, only where profitable.
  • Debt deferrals.
  • The second round of Norwegian government aid (talks are ongoing).

Norwegian’s Boeing 787 Fleet reduction plan

Part of the plan to raise needed cash now includes planning the sale of about half of Norwegian Air’s Boeing 787 Dreamliner fleet.

Norwegian currently has 37 of the long-haul Boeing 787 Dreamliners, and all are on the ground awaiting return to flying.

Norwegian’s CFO Geir Karlsen said that the airline is planning on selling 15 to 17 of its Dreamliners, which accounts for almost half the fleet of the aircraft type. However, Karlsen pointed out that it is a difficult task to sell up to 15 to 17 aircraft of this type in today’s market.

Selling long-haul aircraft during the pandemic is hard because that part of the market is particularly hard hit by the corona-crisis. Long-haul aircraft are also more expensive to buy, attracting a smaller pool of buyers.

What happened during the summer?

July operations

Norwegian reopened 76 routes from July 1 and put an additional 15 aircraft into service.

Throughout the summer frequencies and routes were adjusted in accordance with variations in passenger demand. Changing government travel restrictions and advice presented a challenge.

August operations

Norwegian’s traffic figures for August were heavily influenced by the coronavirus outbreak, country travel restrictions and drop in passenger demand.

The August 2020 capacity was 94% lower than the previous year of August. The few flights that were operated had a load factor of 62.1%. The total number of customers carried in August was 313,316, which was a decrease of 91 percent from 2019.

September operations

Five additional aircraft are back in the air in September. That means the airline has a total of 25 B737 aircraft currently flying.

110 to 115 planes will remain grounded through the upcoming winter season.

Norwegian’s H1 corporate meeting results

During Norwegian’s H1 meeting on August 28 Jacob Schram, CEO of Norwegian, said:

“Passenger demand continues to be rapidly impacted by changing government travel restrictions across different markets. We are continuously adapting our network to adjust to these changes as necessary to ensure that we keep vital air routes open and concentrate supply in line with demand.”

Schram also pointed out that the uncertainty of the pandemic impacting every part of the aviation industry requires the need for a long-term liquidity support package even more critical to protect tourism, jobs and international trade.

Steps in the righ direction

The overall debt and liabilities of Norwegian declined to NOK 71.7 billion by the end of June 2020, from NOK 87.7 billion a year ago.

According to CFO Karlsen, Norwegian’s monthly cash burn is in the upper half of the NOK 300 million to NOK 500 million range. That’s within the range that the company had forecast.

The airline aims to gradually rebuild operations from the second quarter of 2021, but on a smaller scale than before the crisis. Norwegian Air hopes to reach full capacity in 2022, most likely during the summer travel season.

What could happen in a Norwegian collapse?

A Norwegian Air collapse could unfold with different scenarios.

  • The airline could declare bankruptcy, it could liquidate, or there could be an acquisition.
  • The Norwegian government could step in with a last-minute rescue-solution.
  • Or, you could see an aggressive Chinese operator move in, trying to capitalize on the situation to their own benefit.

So, will Norwegian Air collapse?

At this point, not even the airline’s leadership has the answer to the question of whether Norwegian Air will collapse or not.

The airline is finding itself in the greatest economical hangover ever. What is taking place is a desperate fight against a possible collapse.

Unknown amounts of money must materialize to survive. At least Norwegian has the best management team possible to take on the continued fight.

Where do you envision Norwegian Air to be a year from now? Will they avoid a collapse? You can contact us here.

Featured Image: Norwegian, Ryanair and WizzAir at Torp Airport, Norway.

You may also want to read our popular story on Could investing in Norwegian Air Stock now make you rich?

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