Norwegian Air Shuttle remains committed to the low-cost, long-haul model, athough the airline’s survival appears anything but guaranteed as the coronavirus pandemic continues to dampen demand for air travel and hamper its financial restructuring process. The Oslo-based carrier, which struggled with too much debt and low profitability pre-Covid-19, on Friday warned of “a significant risk that the company becomes insolvent and enters into bankruptcy” if it fails to reach an agreement with creditors, gains access to working capital, and resumes what it called “normalized operations.”
Speaking during a second-half results call with analysts, Norwegian CEO Jacob Schram said the company controls the resources to continue operations for now, thanks to a series of measures to strengthen its balance sheet and liquidity. However, “there is no doubt we will need more help at the end of the year if Covid continues, as it is, to get through the winter,” he added.
Measures to boost its financial footing during the past months include a 3 billion Norwegian kroner ($340 million) loan guarantee from Norway’s government and a multi-billion Norwegian kroner debt-for-equity swap involving aircraft leasing companies and the carrier’s bondholders. A handful of lessors, including AerCap, BOC Aviation, MG Aviation, and DP Aircraft Ireland, now represent the largest bloc of shareholders, owning more than 40 percent of the airline after they agreed to convert 11 billion kroner of lease liabilities into equity.
In addition, Norwegian in June terminated its purchase contract with Boeing for the remainder of an order for ninety-two 737 Maxs and five 787s and the GoldCare service agreements related to both aircraft types. Norwegian has also filed a legal claim seeking the return of predelivery payments and compensation for the company’s losses related to the grounding of the Max and engine issues on the 787.
“We still have a dialogue [with Boeing] and we will see in the next weeks, months how this develops,” CFO Geir Karlsen said. He declined to comment on the return of the Max, saying only that he does not expect the airline’s 18 grounded Max 8s to fly in service this year.
Norwegian posted a first-half net loss of 5.4 billion kroner compared with a loss of 1.4 billion kroner in the year-ago period. Passenger numbers collapsed 99 percent year-on-year in the second quarter and fell 71 percent in the first half, to 5.31 million, due to government-imposed Covid-19 travel restrictions. It deployed just eight 737s of its fleet of about 140 jets in the quarter ending in June, flying domestic routes in Norway. On July 1, Norwegian reopened 76 routes across Europe, returned to service another 15 aircraft, and brought back to work some 600 employees. However, the Nordics-to-Europe market remains “highly uncertain” mainly due to constantly changing travel advice from governments across Europe, the airline noted. Karlsen characterized domestic operations in Norway, Sweden, and Denmark as “relatively good.”
Despite the many challenges, Schram voiced a conviction that Norwegian will emerge from the crisis with a solid business platform and a streamlined operation focusing mainly on the Nordics as well as on long-haul. “We believe in the model that was created with low-cost long-haul,” he said. “We had several routes in our pre-Covid-19 portfolio that were profitable. “But we see that we need to scale [the long-haul network] back to get profitability in it.”
However, Karlsen admitted that divesting 15 to 17 Boeing 787s “will be a difficult task in this market.” Norwegian now has 37 Dreamliners that it deployed on its long-haul network before the pandemic closed borders; it owns 11 of them and leases 26 from companies that also now hold stakes in Norwegian. “We are already discussing alternatives with them,” said Karlsen. “We must find a solution to take down capacity on the long-haul. It is not going to be easy. We are on it.”