Norwegian Air Seeks More Funds as Insolvency Threat Looms

(Bloomberg) -- Norwegian Air Shuttle ASA said it will need more funds to avert insolvency and announced plans to scale back the discount long-haul operations that it pioneered in order to survive.

The beleaguered carrier, which reported a pre-tax loss of 4.8 billion kroner ($541 million) for the first half, said it will require additional working capital in the first quarter of 2021 to meet its obligations and will consider another private placement of shares as well as selling assets. That’s after the carrier already received a government-backed loan and converted debt into equity.

The pandemic has ripped through the global travel industry, forcing airlines to halt operations, lay off employees and seek financial help from governments and investors. Norwegian, which was already struggling pre-Covid 19, was forced to ground virtually its entire fleet as well as furlough or outright eliminated 8,000 employees, representing 80% of its workforce.

Norwegian warned of “a significant risk that the company becomes insolvent and enters into bankruptcy” should it fail to reach an agreement with creditors and gain access to working capital, as well as resuming what it called “normalized operations.”

The carrier is in the process of assessing its liquidity requirements for the next two calendar years, a task that Chief Financial Officer Geir Karlsen called extremely complex given continuing travel restrictions. Monthly cash consumption stood at the higher end of Norwegian’s projected 300 million to 500 million-krone range, the CFO said on a conference call in Oslo Friday.

Uncertain Times

Norwegian shares fell as much as 11%. They were down 6.5% to 1.16 kroner at 10:50 a.m. in Oslo and have lost 97% of their value this year, the worst performer on the 28-member Bloomberg European Travel Index

The renewed warning comes a few months after the company brokered a rescue deal in April that handed almost all of the airline’s equity to its creditors. While the accord gave the airline a much-needed lifeline, Norwegian warned at the time that it might need to seek additional funds later in the year.

“Given the current market conditions, it is not enough to get through this prolonged crisis,” Chief Executive Officer Jacob Schram said.

On Friday, Norwegian reiterated that air travel remains a “highly uncertain” activity, with governments changing recommendations frequently, Norwegian said. For now, the company has the resources to continue operations, but that could change, the carrier said.

Norwegian used just 8 planes of its fleet of about 140 jets in the quarter ended June, flying domestic routes in Norway. The company has since doubled the number to 20 in July and it will increase that to 25 planes next month, it said. The carrier plans to operate between 20 and 30 planes for the next few months, and gradually scale up toward summer 2021.

In June, Norwegian terminated the purchase of 97 Boeing Co. jets it had on order, including 92 narrow-body 737 Max. That airliner has been grounded since March 2019 following two fatal accidents, and Norwegian filed a lawsuit in Chicago, seeking to compensation as well as the return 18 737 Max jets that had already been delivered.

Norwegian, which made a splash with its low-cost long haul operations, will scale back that service and is talking to lessors to pare down its fleet of Boeing 787 Dreamliner jets. While the carrier won’t outright abandon long-haul, it would serve that market “on a smaller basis first and then build from there,” Schram said.

“Now that lessors represent the largest bloc of shareholders, NAS finds itself with too many aircraft that it does not need,” wrote Daniel Roeska, an analyst at Bernstein in a note to clients. “Survival into 2021, in our view, remains uncertain.”

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