Could Norwegian Air Be Days Away From Collapse?

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.


Copyright william87 / 123RF Stock Photo

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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. In addition to Norwegin struggling, I understand that Norwegian is also having problems.

    Regardless, thanks for this update.

  2. That could explain the 25% discount code (XMASOFFER18) they’re running this week. Perhaps trying to get some extra funds in the bank?

  3. @Andy

    What is this offer they’re running? I checked my email and did some light Googling and didn’t see anything? 🙁

  4. For many reasons, I am not a big fan of LCC

    They are, one of the reasons world CO2 emissions, have increased in the last few years

    I never like any business going down. I feel sorry for the people that work there

    I hope they do well

  5. Norwegian may be trying to go bankrupt to get out of the upside down fuel hedging contracts. I am not sure why an airline with customers from an oil rich country would hedge on high fuel costs without corresponding nonrefundable ticket sales to pay for the hedge.
    But they carry so much debt, that the contract sellers may wish they had hedged their sales, especially the long term contracts.

  6. @Aircraft Lover: I assume you were also not in favor of the 2008-09 economic stimulus programs? Just as the US and the rest of the world was right-sizing to balance consumption and production, we took on massive debt, both the Federal Reserve and the taxpayers, to grow the economy.
    Hopefully this growth leads us to inventing non-CO2 byproduct fuels, and not just money to pay CO2 taxes.
    I agree that LCC generate more CO2 for nonproductive consumption (i.e. leisure travel) but I dont think those travellers are all Republicans who think climate change is a hoax.
    Overall, I find your observation interesting.

  7. LCC CO2 emissions

    Emissions from UK aviation, have increased by nearly 70% since 1990, expected growth will nearly double this within 25 years

    Aircraft fuel burn generates complex chemical reactions that take place when aviation fuel is burned at high altitude, making emissions from airplanes, three times as damaging as those at ground level

    The Tyndall Centre for Climate Change Research estimated that last year, aviation emissions could account for up to half of the UK’s total emissions target by 2050

    A the moment, there is no prospect of any major technological breakthrough that will significantly reduce aircraft emissions

    If Britons continue to fly as the Department for Transport forecasts, the number of passengers will increase from 228 million now, to 465 million by the year 2030

    For anyone concerned about their contribution to global warming, cutting back on unnecessary air travel is an obvious objective

    It is more environmentally friendly, to burn 70 euro worth of coal, in your fire pit than the CO2 emissions generated by your 70 Euro LCC flight ticket

  8. I have first class flights booked in April with the company! What do you guys think would happen to people with paid booked flights? Will we loose are money if they go bankrupt?

  9. @Dominic,
    If they go bust there’ll be no refund, you become a creditor right at the back of the line and your chances of getting anything are zero.

    If you booked using a *credit card* then you’ll stand a good chance of getting your money back by filing a charge back. That’s how Primera customers got their money back (those that paid by CC) when they went bust.

  10. @USBusinessTraveller

    Hey thanks for the reply. I used the Chase Sapphire Reserve card I know what comes with some kind of travel insurance so maybe I’ll get lucky if it does go down like that. What do you guys think the probability of this happening is? Is it as bad as a 50/50?

  11. “If you booked using a *credit card* then you’ll stand a good chance of getting your money back by filing a charge back.”

    A few weeks ago I booked my first-ever flight on Norwegian for January 8. Luckily my billing statement isn’t until January 6.

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