Norwegian Air Shuttle entered the crisis with one of the highest debt loads of any airline
Norwegian Air Shuttle entered the crisis with one of the highest debt loads of any airline © REUTERS

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Norwegian Air Shuttle warned it needed another rescue package only months after the low-cost airline secured a massive debt-for-equity swap backed by Norway’s government.

Europe’s third-largest low-cost airline on Friday said it had cut its pre-tax losses by half in the second quarter compared with the first three months of 2020.

But chief executive Jacob Schram cautioned that a NKr3bn ($340m) loan guarantee from Norway’s government, unlocked by a NKr15bn debt-for-equity swap involving aircraft leasing companies and the carrier’s bondholders, was unlikely to be sufficient.

“Given the current market conditions it is not enough to get through this prolonged crisis,” he said on Friday.

Airlines are facing their biggest crisis after coronavirus prompted countries to close their borders in an effort to curb its spread. Norwegian’s passenger numbers collapsed by 99 per cent in the second quarter. Its hopes of demand recovering over the summer have been hit by Norway’s government reimposing quarantine requirements on travellers from countries such as Germany, Spain, the UK and France.

Governments worldwide are propping up airlines, but Norway’s was initially reluctant to do the same with Norwegian as it entered the crisis with one of the highest debt loads of any airline due to ill-fated expansion plans in recent years, particularly into low-cost, long-haul travel.

Norwegian showed how fast its finances were deteriorating by saying its equity ratio was 14.6 per cent at the end of June, having been as high as 17 per cent directly after its debt restructuring in mid-May. It was about 5 per cent before the debt-for-equity swap.

The airline warned on Friday that it needed additional working capital by the start of 2021 to remain solvent and suggested it could be achieved through a fresh capital increase, selling or refinancing assets, or fresh loans.

“Although the company believes there are reasonable prospects to resolve potential defaults and obtain necessary working capital, there is a significant risk that the company becomes insolvent and enters into bankruptcy if, inter alia, the company is not able to reach an agreement with its creditors, access to working capital and regain normalised operations,” it said in a statement.

Norwegian’s directors said that there was a “material uncertainty that casts significant doubt upon the company’s ability to continue as a going concern” but said that after making inquiries they had a “reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future”.

Norwegian, which operated 7-8 aircraft during the height of the coronavirus pandemic on domestic routes in Norway, is planning to increase the number of planes it uses from 20 at the end of July to 25 in September out of a total fleet of 140.

Shares in Norwegian fell 6 per cent on Friday morning.

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