Low-cost airline Norwegian has secured a more positive future for itself after finally getting its bondholders to agree to a substantial debt-to-equity swap today. Creditors will have more than $900m of debt converter into equity, balancing the airline’s equity ratio and allowing it to unlock millions in government support. Shareholders voted 95% in favor of the move, even though it leaves them with only 5% of the company.
Norwegian gets shareholder backing
Struggling carrier Norwegian Air will push forward with a plan to rescue the airline. It has today been reported by the Financial Times that the carrier has secured the backing of its shareholders for a sizeable debt-for-equity swap, allowing it to unlock state support.
The equity swap is valued at around 10bn kroner ($958m) and will allow Norwegian to unlock 3bn kroner ($290m) in aid from the Norwegian government. It will, unfortunately, mean that the majority ownership of the airline will pass to its creditors, leaving the shareholders with just 5.2% of the company.
The Financial Times quotes CEO Jacob Schram as saying,
“It is incredible relief that we feel just now. But at the same time that we punch the air now and celebrate, there is still a lot of work ahead of us.”
The backing of the bondholders came at the 11th hour for Norwegian, following a weekend of frantic negotiations. The vote was taken early today and received a 95% positive response to all proposals, including the issuance of a 400m kroner ($38m) share issue.
The move will take Norwegian’s debt to equity ratio to around 15%, much higher than the 8% required by the Norwegian government to secure its backing for loan guarantees.
Narrowly avoiding bankruptcy
The support Norwegian has received today and the government aid it will unlock means the carrier will likely avoid bankruptcy. It was previously doubtful that the airline would survive after one of its four bondholder groups said it wouldn’t back the debt-for-equity swap last Friday. However, Norwegian successfully sweetened the deal and is now looking at a much-improved future.
Despite this, the low-cost long-haul pioneer is not out of the woods yet. Last week, it was revealed that the airline was expecting to burn through around 500m kroner ($48m) every month from July onwards. A prolonged grounding of its services still puts it at risk.
The airline has previously warned that almost all of its aircraft would remain grounded until 2021. The Guardian reported that just seven of its 147 aircraft are left flying, being used for domestic flights and cargo operations. The ‘new Norwegian’ that will emerge from the crisis is predicted to be around 30% smaller and to have a much greater focus on Nordic operations.
Schram told the Financial Times that its long-haul business would be cut by as much as 40% when the carrier re-emerges, suggesting the new Norwegian will be a very different airline indeed.
Will you miss Norwegian’s cheap long-haul flights? Are you pleased to see things looking up for the airline? Let us know your thoughts in the comments.