Dhaka: Norwegian Air has announced that the carrier is expecting most of its aircraft fleet to remain grounded until 2021 as the airline seeks to persuade shareholders to accept a government-backed rescue plan that will wipe out most of their investments.
At the beginning of a critical fortnight for the airline, Norwegian laid out the scale of the task ahead – and the hit it expects bondholders, aircraft lessors and shareholders to take in order for the airline to access a USD 287 million state bailout.
Even that may not be enough, it warned, in its “base scenario”, where operations may only restart in earnest next summer. Currently just seven of a fleet of 147 planes are not grounded as they are being used for state-subsidised domestic flights in Norway, mainly for essential cargo.
The airline is planning for a “New Norwegian” to emerge, focusing on key profitable routes, jettisoning long-haul routes to secondary airports, and using a fleet up to 30 per cent smaller than previously planned.
Bondholders will later this week decide whether to accept the strategy and allow the debt to be converted into equity, a necessary move if Norwegian is to gain access to state funds.
Norwegian’s aircraft lessors will also be asked to take equity in the company, rather than pursue debts. The airline is looking to reduce its obligations on leasing planes by USD 500 million.
Shareholders will vote on the proposal at an emergency general meeting on May 4. If the plan is approved, new shares will be issued on May 11, which will reduce the value of current shares by another 95 per cent.
The carrier grounded its fleet in mid-March due to coronavirus travel restrictions, and has temporarily laid off more than 80 per cent of its workforce. Before the outbreak, Norwegian claimed to be on track to restore its balance sheets to sound health after years of rapid but financially precarious expansion.
Although it says the current restructuring and state aid will be a buffer only for the next six to nine months, the airline’s prospects of survival – albeit heavily pruned – may be stronger now than in recent years, when rivals regularly predicted its demise.
Political support has grown for the oil-rich Norwegian state to preserve the flag-carrier, in some form. An emergency amendment to bankruptcy laws could be passed to mirror the Chapter 11 rules in the US, which have allowed airlines to continue operating during insolvency.