Struggling budget carrier Norwegian Air has told its UK employees that it does not have the funds to pay April wages. Employees were previously told to expect pay cuts and redundancies as the airline tries to survive the current downturn in travel demand.

Financial difficulties

Norwegian Air was in trouble before the outbreak of coronavirus. The airline, Europe's third-largest budget carrier after Ryanair and easyJet, recorded an operating loss of £340m ($426m) in 2018. This resulted in an emergency cash call and an attempt to overhaul its finances.

The airline operates an all Boeing fleet and had placed a firm order for 108 737 MAX aircraft, along with options for 92 more. The fiasco surrounding the MAX means the airline's fleet is not what it should be. Currently, it has only taken delivery of 18 MAX jets. As well as its MAXs, Norwegian has struggled with ongoing issues with its Trent 1000 equipped Dreamliners, further hampering its ability to turn a profit.

All this, combined with the global drop in demand due to coronavirus, has put Norwegian in a challenging situation. In March, the airline was forced to ground most of its fleet and temporarily lay off around 90% of its staff. Now, it looks like workers in the UK are bearing the brunt of the difficulties.

In a letter to workers, the airline confirmed it would not be able to pay staff salaries on the coming payday on the 25^th of April. Around 1,000 pilots and cabin crew based in the UK were already prepared to have their pay cut and face potential redundancies. It's unlikely these workers expected such a significant reduction, although this doesn't necessarily mean they won't get paid in the end.

Government support

The airline's crew management company OSM Aviation UK HR said it would be applying for the UK government's furlough scheme when it opens on the 20^th of April. This would mean the UK government would cover 80% of staff wages. However, in the meantime, the airline will not be able to pay staff.

The airline confirmed to Simple Flying that it decided to apply to the UK government's scheme as this was the best deal for staff members. It stated that management company OSM, which is partially owned by Norwegian, has "been in constant dialogue with the relevant unions to reach the best possible agreement for our crew colleagues based in the UK." Norwegian is expecting payments to be just one week later than usual.

The airline is also looking to the Norwegian government for state aid—Norwegian needs to reduce its debt to equity ratio before the government provides more money. Currently, the Norwegian government has agreed to a loan of 3bn krone ($300m), but only if the airline can meet certain conditions. So far, it has qualified for one-tenth of the loan amount.

The next steps

The airline needs its refinancing plans to be approved by creditors. Currently, the procedure involves converting 44.5bn kroner ($4.1bn) of debt into equity. They would also reissue new shares, which makes the current share value almost non-existent. If they manage to get government aid from both the UK and Norway, then the airline may yet survive.

Importantly, Norwegian, like many other airlines, needs current travel restrictions to lifted as soon as possible. If Boeing could restart production of its MAX jets and get them back in the sky, then a few years from now, Norwegian may be on the heels of Ryanair and easyJet again.

The airline's third-quarter results last year showed a rise in revenue of 7.6% and marked signs of a turnaround. The new CEO Geir Karlsen ushered in a new era for the airline. The summer season was looking good before the virus. Network changes looked like the airline was starting to get back on track.

It would be a shame if the impact of coronavirus ruined the airline's chances of survival. If Europe's borders are closed until September, then the airline may not live to see 2021. But I wouldn't rule them out just yet, Norwegian has had some tough times, and it just keeps fighting.