December 2, 2020

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Norwegian Air faces ‘very uncertain future’

3 min read

Struggling airline Norwegian Air faces a battle for survival after the Norwegian government said it would not provide further backing.

Extra loan guarantees would be too “risky” and “not defensible”, the country’s government said.

The airline said it faced a “very uncertain future” with “ventilator support” needed to survive the winter.

Norwegian Air said in August it would run out of money in the first quarter of 2021 without extra cash.

The airline, which like the rest of the sector has been hit hard by the coronavirus crisis and has grounded most of its fleet, has been holding talks with the government to try to gain more backing.

“The fact that our government has decided to refrain from providing Norwegian with further financial support is very disappointing and feels like a slap in the face for everybody at Norwegian who is fighting for the company when our competitors are receiving billions in funding from their respective governments,” said chief executive Jacob Schram.

“The company and the board will turn every stone to get through this situation,” Mr Schram told a news conference, noting that Norwegian has not run out of cash yet.

“But we need ventilator support to get through the winter,” he said.

Norwegian shares plunged on Monday morning, extending their drop this year to a 99% fall.

Analysis box by Theo Leggett, business correspondent

Where now for Norwegian? Without government money, it will need to find other sources of cash, either from existing shareholders or outside investors. That may prove tricky.

Before the Covid outbreak, Norwegian was seen as a standard-bearer for the low-cost, long haul model. It certainly ruffled feathers among established long-haul operators, but struggled to make money.

For the moment Norwegian is a shadow of its former self. It is focusing on a limited number of short-haul routes, centred on the Nordic region, although it has begun selling tickets for some long-haul services next year.

But with the aviation market not expected to recover to pre-Covid levels until 2024, and with travel restrictions and quarantine measures still widespread, it is a challenging environment for any investor.

More cash may be hard to find – and with current reserves fast running out, Norwegian needs it quickly.

‘Tough message’

The Norwegian government has given support to its airline industry during the coronavirus crisis.

In March, it offered a loan guarantee scheme worth 6bn krone (£500m), where the government would pick up 90% of that risk.

Half of that guarantee scheme went to Norwegian Air, while 1.5bn krone was directed at rival SAS and the remaining 1.5bn went to Wideroe and other airlines.

In May, creditors and lessors took control of Norwegian Air, allowing it to access those state-guaranteed loans.

But on Monday, Norway’s coalition government, which has long-ruled out nationalisation of carriers, said no more guarantees would be forthcoming.

“It is a tough message to get. But we are answerable for the responsible use of public funds,” said industry minister Iselin Nyboe.

“Norwegian Air has a financial structure that makes it risky for us to go in with support. It was not defensible,” she said.

Norwegian Air’s expansion left it with debt of close to £6bn by mid-2020, making it vulnerable to the effects of Covid-19 pandemic, which has severely affected the frequency of flights.

Last month, Norwegian operated only 21 of its aircraft, leaving more than 100 grounded, including its fleet of 37 Boeing 787 Dreamliners used for transatlantic journeys.

The company has said that more funding could come from the sale of aircraft, the conversion of more debt to equity, or from its owners and the Norwegian government.

The government said that so far this year it had provided an estimated 13bn krone in support for the airline industry including loans, guarantees and tax cuts.

2020-11-09 07:36:02

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