The low cost transatlantic airline Norwegian Air faces a battle for survival this winter after being hit badly by the economic downturn caused by the pandemic.
On Monday, it revealed the country’s government declared that it will not provide additional financial support for the airline.
The cash-strapped carrier will now ground all but six of its 154-strong fleet, and furlough 1,600 more staff, keeping on just 600 of its 10,000 workers.
Norwegian Air said in August that it would run out of cash in the first quarter of 2021 unless it could secure fresh funds and has held talks with the government in the hope of winning support.
‘That the government has decided to reject the request for funds is disappointing and feels like a punch in the gut for everyone at Norwegian,’ Chief Executive Jacob Schram said.
Norwegian Air may not survive much longer after the country’s government said it would not provide any additional financial support to the carrier
‘The company and the board will turn every stone to get through this situation,’ Schram said, adding the carrier was not out of cash yet.
Asked whether the company was at risk of bankruptcy, Schram said he would not rule out any potential outcomes.
‘But we need ventilator support to get through the winter,’ he added.
Norwegian’s shares closed down 13.2%, extending this year’s price plunge to 98.5%.
In an update after the market closed, Norwegian announced it was furloughing an extra 1,600 staff, leaving 600 people still working at the airline of the 10,000 staff it had before the pandemic.
The airline will also park 15 of the 21 aircraft it had in operation in recent months.
Most of the airline’s fleet has been grounded since the start of the coronavirus
The airline would only fly 12 routes, all domestic.
Favoring free enterprise, Norway’s centre-right coalition government has long ruled out any nationalization of Norwegian or other carriers and in 2018 sold the state’s remaining 10% stake in rival SAS.
‘It is a tough message to get. But we are answerable for the responsible use of public funds,’ Industry Minister Iselin Nyboe said.
‘Norwegian Air has a financial structure that makes it risky for us to go in with support. It was not defensible.’
A pioneer in low-fare transatlantic air travel, Norwegian Air’s rapid expansion left it with debt of close to $8 billion by mid-2020, making it vulnerable to the fallout from the COVID-19 pandemic.
The carrier has shown a great ability to overcome financial difficulties in the past, Transport Minister Knut Arild Hareide said.
A further 1,600 staff are to be furloughed leaving 600 people at the airline
‘I don’t want to speculate on their ability to do so,’ Hareide said when asked about Norwegian’s chances of staying in operation.
Parat, a labour union for pilots and other aviation industry workers, called on the government to reconsider.
‘Wideroe, SAS and Norwegian must get help to weather the crisis,’ said Parat leader Unn Kristin Olsen. Wideroe is a regional airline.
Creditors and lessors took control of Norwegian in May with a financial rescue that allowed it to access state-guaranteed loans of 3 billion crowns ($329 million) as the company sought to operate a slimmed-down service.
Norwegian has grounded more than 100 grounded aircraft, including its entire fleet of 37 Boeing 787 Dreamliners used for transatlantic journeys.
It was not surprising Oslo had withdrawn support after the failure of Norwegian’s bid to become a pan-European airline serving intercontinental markets, said Bertrand Grabowski, a former aviation banker who is now an independent adviser.
‘You can perhaps use Norwegian taxpayers’ money to support a regional airline, but not one serving Paris-New York or London-Buenos Aires (routes),’ he said.
Scandinavian carrier SAS is a major competitor in Norway, and Hungary’s Wizz Air recently launched several services to Norwegian cities.
The company will use just 6 of the 154 aircraft on its books and will fly just 12 domestic routes, down from 149 when the airline was at its height
Airlines are particularly crucial infrastructure in Norway, the geography of which stretches more than 1,367 miles across fjords and mountains with few train lines to transport people.
Bernstein analyst Daniel Roeska said Wizz Air’s plans for new services in Norway may have deepened Oslo’s reluctance to ‘throw good money after bad’.
‘Even if they had put in a bit more money for the winter, it likely wouldn’t have been enough,’ he said, adding that a bankruptcy would leave aircraft lessors stuck with planes they won’t be able to place.
However, a last-minute government intervention shouldn’t be ruled out entirely, Roeska said, adding that ‘the door is never closed’ until bankruptcy is confirmed.
The company has said that more funding could come from the sale of aircraft, conversion of more debt to equity or from its owners and the Norwegian government, while declining to specify the amount it might seek.