The prognosis for Norwegian Air Shuttle continues to deteriorate. With the demand for travel collapsing, Europe’s third largest low-cost carrier has slashed flights and furloughed staff. The Norwegian government is subsidizing the airline to keep some intra-Norwegian routes operating. But on some of these flights, Norwegian Air Shuttle is carrying just one passenger.
Norwegian Air Shuttle was struggling before the pandemic
The low-cost carrier had been struggling prior to the 2020 pandemic. As Karol Ciesluck wrote in Simple Flying last year, concerns about Norwegian’s weak financial position have been around for some time. In 2019, the airline made concerted efforts to turnaround and get back into the black. That included selling off Norwegian Argentina, axing some of its long-haul flights to North America, and tightening capacity and frequency on many of its intra-European routes.
The airline’s choice of aircraft had also posed challenges. Norwegian’s fleet is composed entirely of Boeing 737s and 787s. While the older 737s have been relatively trouble-free, Norwegian has 18 Boeing 737 MAXs sitting idle (with over 100 still on order). The 29 Boeing 787-9s have been plagued by engine issues.
And while Norwegian was tentatively forecasting a profit this financial year, the upshot was the airline moved into 2020 in a relatively weak financial position.
The 2020 crisis worsens an already poor financial position
That financial position has been further undermined by the present pandemic which had gradually impacted Europe and North America. But the problems for Norwegian Air Shuttle grew exponentially when US President Donald Trump issued a travel ban for non-citizens coming from Europe.
Within the same week, Norway moved to close its borders to non-citizens.
Literally, overnight, Norwegian grounded 40% of its long-haul fleet and slashed its European flights by 25%. Within days, Norwegian CEO, Jacob Schram, was saying his airline could run out of cash unless it received government assistance.
“What is important is to provide liquidity within weeks, not months,” he said.
Again, within days, Jacob Schram moved to cancel 85% of scheduled flights and temporarily lay off 90% of the airline’s staff.
“What our industry is now facing is unprecedented and critical as we are approaching a scenario where most of our airplanes will be temporarily grounded,” he said.
An airline on life support
Since then, Norwegian Air Shuttle, like many airlines, has been on life support. The Norwegian government has given the airline a tax holiday and offered a USD$280 million bailout. But to date, Norwegian has only received a small fraction of the amount. To access further funds, it needs to gain relief guarantees from suppliers and look at selling a stake off in the airline.
Meeting these requirements may be easier said than done. Given Norwegian’s long-running and systemic financial problems, it has never been the most attractive airline for potential investors. And now, on the eve of a prolonged global recession, wallets are snapping shut everywhere as potential buyers look to conserve cash. Who wants to buy a stake in a financially hemorrhaging capital hungry airline that looks like it is going nowhere fast?
Besides, as the situation gets grimmer, why wouldn’t a buyer of distressed assets let the situation at Norwegian deteriorate further? They could step in at the last minute and snap up the airline for a token sum. By then, there may also be some light on the horizon for an uptick in the aviation industry.
In the meantime, while the Norwegian government keeps subsidizing domestic routes, Norwegian Air Shuttle will probably keep flying skeleton services with barely any passengers.