A report from Denmark’s Danske Bank says that Norwegian Air, the largest of the transatlantic discounters, could breach conditions of its debt if it doesn’t raise fresh capital by the end of the year.
Analyst Martin Stenshall at Danske Bank thinks Norwegian will violate the terms of its loans by New Year, if it fails to sell off many of its new aircraft. That in turn can cause suppliers to demand cash to pay for fuel of aircraft landing fees. “If the company has to report a violation of the conditions surrounding its debt, it can land in an evil spiral and the crisis will escalate,” Stenshall told DN.
The airline faces heavy debt, high costs of fuel hedging in the face of falling oil, and weak seasonal demand on top of questions over whether its business model is sustainable over the long term.
There do appear to still be levers they can pull. Options include selling aircraft or an additional cash contribution from shareholders, selling the carrier or restructuring. The airline has declined to comment on the report other than to say its board has confidence in management.
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Norwegian has faced rising costs and there’s been concern for over a year that they lacked the cash to keep going. They agreed to sell 5 Airbus A320neos to raise cash back in September.
In April British Airways parent company IAG acquired just under 5% of Norwegian and started talks to acquire the discount carrier. I assumed that acquire meant smother it so that the airline wouldn’t keep depressing transatlantic fares, especially out of cities like London. At IAG’s Capital Markets Day less than two months ago they indicated continued interest in an acquisition which would also give them more slots at London Gatwick.
Another possible maneuver is “to sell up to 140 aircraft into a new company that would be owned with an unidentified financial player. Finance director Geir Karlsen reported that he and his colleagues were still working to establish a “joint venture” to own aircraft.”
Low cost transatlantic competitors Wow Air is teetering, and Primera has gone out of business. Norwegian operates both long haul and within Europe and is struggling through the most challenging time of year for a carrier in this hemisphere. How that will change the airline going forward remains to be seen.