Norwegian To Get $275m Bailout To Avoid Collapse

Beleaguered airline Norwegian has been thrown a lifeline by its home government. The state is preparing a bailout package worth three billion krone (approx. $275m) to keep it afloat during these trying times. In total, Norway will be providing a conditional state loan guarantee to the aviation industry which amounts to a total of six billion krone ($537m), of which half will go to Norwegian.

Norwegian has been thrown a lifeline, but it’s not without its caveats. Photo: Norwegian

Norwegian saved by the state

Norwegian has been having a tough time with the coronavirus pandemic. Not in the best of financial health prior to the outbreak, it has already made plans to lay off as many as 90% of its workforce amid huge cuts to flight schedules.

A week ago, the airline had called upon the government of Norway to lend support, in a bid to keep the wolf from the door. No details of the amount of aid requested were released, but the airline had made it clear it needed help sooner rather than later.

787 lightning protection
A large proportion of Norwegian’s long haul fleet has been grounded. Photo: Norwegian

Now, its wish has been granted as the Norwegian government has approved a rescue package of six billion krone ($537m) for its aviation industry, of which Norwegian will be receiving half. As reported by Reuters, the announcement of the funding package came late in the day yesterday (Thursday).

Not free money

While the substantial rescue package could be just the lifeline Norwegian needs, it’s not funding that comes without strings attached. Industry minister Iselin Nyboe told a news conference yesterday that Norwegian must boost its equity if it is to make use of the three billion krone on offer.

Earlier this week, we shared the details of a Center for Aviation (CAPA) report which detailed how much cash to hand various European airlines and groups were known to have. Ryanair and Wizz Air were leading, with as much as half a year’s worth of liquidity each. Norwegian, on the other hand, reported just NOK3.1 bn of liquidity at the end of December, equivalent to just 7% of its revenue and 26 days of operations.

Jacob Schram
Jacob Schram is ‘grateful’ for the offer. Photo: Getty

CEO Jacob Schram praised the Norwegian government for its swift action, telling Reuters,

“We are very grateful that we are now being offered this.”

He went on to say that it was too early to comment on the specific details of the conditions set by the government, he did confirm that the airline would be doing all it could to meet these demands.

Details of the deal

So far we know that any money given to Norwegian will be in the form of a loan rather than a grant. The initial offering from the Norwegian government is up t0 300 million krone ($43m) and that the airline must convince commercial lenders to stump up 10% of the cash.

If this is successful, then Norwegian could open the door to a further 1.2bn Krone ($116m) if its creditors agree to waive interest rates and installments. The additional 1.5bn krone ($145m) would only be released on the condition that the airline manages to boost its equity capital. Nyboe told Reuters,

“Norwegian had financial challenges also before the coronavirus crisis, and with this plan we make it clear that both owners and lenders must contribute to improving the company’s financial situation if the state is to provide guarantees.”

787 Dreamliner, Norwegian
A tough time lies ahead for the airline. Photo: Norwegian

Norwegian has a tough challenge ahead of it if it wants to be able to access the maximum amount of guaranteed loan. Its low levels of liquidity prior to the coronavirus crisis have left it in a weak position to survive the current challenges. However, it could attempt to raise some cash through sale and leaseback deals on its aircraft, although a large proportion of the fleet is already leased, so it’s unknown how successful this will be.

Do you think Norwegian will have what it takes to open the door to this lifesaving loan? Let us know in the comments.