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 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.
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 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.
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.
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.
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!