Norwegian Gambles Gatwick Slots In Bond Debt Repay Period

Norwegian just cannot get a break. Between issues with the Dreamliner, the 737 MAX groundings, and an intensely competitive market, they have had immense difficulty reaching and maintaining financial stability. Now, Norwegian is seeking to amend some of their bond terms. In this case, they are now going to offer up their crucial Gatwick slots.

Norwegian
Norwegian is gambling with their Gatwick slots amid concerns about the airline’s financial status. Photo: Norwegian

Norwegian detailed this in a press release. In terms of Gatwick, here is what Norwegian is offering:

NAS is requesting to extend the maturity dates of its two unsecured bonds in exchange of a security package backed by the attractive take-off and landing slots at London Gatwick Airport.

Why is Norwegian doing this?

Norwegian is asking to extend the maturity dates of two bonds to 2021 and 2022 respectively. In order to make this more appealing to bondholders, Norwegian is offering them a security package of all shares which does include the crucial takeoff and landing slots at Gatwick.

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Norwegian wants to extend the maturity date of two bonds to 2021 and 2022. Photo: Norwegian

According to the airline, the slots are worth more than the bonds. And, for the airline, these slots allow them to facilitate connections and help keep their planes full.

Norwegian’s operations

Norwegian has not had an easy year. Their losses for the first quarter totaled over $170 million. Moreover, the airline has been trying to increase their cash reserves. With the end of the summer season, the tough winter is coming up soon. During this period, it is likely that Norwegian will have lower load factors as travelers prefer warmer destinations in lieu of European cities.

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Norwegian has been working to improve their financial situations. Photo: Norwegian

What Norwegian thinks

Norwegian believes that they are on track to reach NOK 6-7 billion in EBITDAR in 2019. This is equivalent to about $650-770 million USD. EBITDAR stands for earnings before interest, taxes, depreciation, amortization, and restructuring, and is a way to measure financial performance. Still, this does not indicate a profit of $650-770 million USD.

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Norwegian still has to walk a fine line when it comes to earning a profit this year. Photo: Norwegian

Another interesting tidbit is that Norwegian anticipates that issues with Rolls Royce Dreamliner engines and the 737 MAX grounding will cost them about NOK 1.5 billion, or just shy of $165 million.

With all this, Norwegian anticipates hitting their cost-cutting goals for 2021 and 2022. However, there could be unforeseen events that could lead to a dent in Norwegian’s profitability. Although, the Gatwick slots will likely be one of the more appealing offerings for the bondholders.

Overall

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Norwegian’s Gatwick slots are incredibly valuable to the carrier. Photo: Norwegian

It will remain to be seen if Norwegian’s financial status improves in the coming years. However, a lot of it depends on how Norwegian gets through the next few months amid these constraints.

What do you think about Norwegian’s gamble? Is it worth it? Let us know in the comments!

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Peter

Yes, absolutely, it is worth it to try. Norwegian can get back on its feet, but it needs to learn and start listening, “Increase your prices on your tickets, other services and extras. NA can always decrease prices again once it reaches financial stability. Take action and correct the problem immediately before is too late. Thank you.

Rod Abid

Like so many before them (PeopleExpress for example) they grew & grew but with no thought as to what the growth might cost. Others grow quickly (Southwest for example) but make sure the growth makes sense and usually start with one flight a day before expanding the route. Braniff did the same thing after deregulation expanding in Dallas but also flying useless routes such as STL to JFK and many others. They were gone within 4 years. I suspect Norwegian will be out of business before the loans ever get paid.

RC20

You make your own breaks. In this case Norwegians ego hugely exceeded its capability.

It what happens when you have bad management. They are so in dept as to never see the surface again and are desperadoes selling assets and doing deals to stay afloat.

Time to take to the lifeboats and sell to IAG.

Ken

I think the problems with their Dreamliner engines is greater than they are letting on. On Tuesday there were 6 sitting at Prestwick Scotland all pushed to one side of the airfield . This is the middle of summer and these new aircraft should be flying 24/7 or dry-leased.