Norwegian Air Shareholders Approve $1 Billion Rescue Deal
Norwegian Air Shuttle lessors are backing the embattled carriers rescue plan as the Scandinavian low-cost carrier looks to…
Norwegian Air Shuttle lessors are backing the embattled carriers rescue plan as the Scandinavian low-cost carrier looks to survive the COVID-19 crisis.
According to the Guardian, the agreement was reached over the weekend after Norwegian narrowly failed to get approval from its fourth NAS07 bondholders. The debt-ridden airline is now in meetings with shareholders as it hopes to convert $1.2 billion in debt into equity to comply with the Norwegian government’s criteria for help.
Norwegian Air is desperately scrambling to stay afloat after bondholders rejected a debt-to-equity swap at a meeting held on April 30. While talks are set to continue as to how Norwegian can be saved, the debt-ridden carrier’s chance of making it through the COVID-19 crisis appears to have suffered a significant setback.
While not alone in trying to overcome the unprecedented threat to the airline industry brought about by the coronavirus, Norwegians problems run much more profound than travel restrictions.
Norwegian switched from expansion to profit
After a period of rapid development that saw the low-cost airline add long-haul routes to its network, the Oslo-based airline changed its growth strategy to one aimed at profitability.
Before the coronavirus, it seemed like this tack away from growth was starting to pay off. Now, however, all bets are off as Norwegian struggles to pay back its massive debt.
Desperate to come up with a solution, Norwegian will run out of cash by the middle of May unless creditors and shareholders can agree to a comprehensive restructuring plan. Like other countries around the world that have stepped in to support the airline industry, the Norwegian government has promised money if the airline can reduce its debt to equity ratio. This follows on from the 300kr million ($28.7 million) that the government has already allocated for Norwegian Air Shuttle.
Majority ownership will go to the lessors and bondholders
The plan put before the bondholders would see Norwegian swapping $1.2 billion of its debt into equity while handing over majority ownership in the airline to bondholders and lessors. While voting on the proposal on Friday, three of the bonds gained enough support to back the plan, but holders of the fourth bond rejected the idea falling short of the support needed to proceed.
The fourth bond NAS07 only received 62% of the 67% that was required with Norwegian, saying that they will try again at a bondholder meeting that is scheduled for May 18.
According to newswire service Reuters reporting on the meeting Norwegian Air Shuttle CEO Jacob Schram said:
“Our dialogue with the bondholders continues with the clear goal of reaching a solution. Unfortunately, we were not able to reach an agreement within the deadline.”
“However, the discussion is continuing through the weekend to find a solution.”
A deal was reached on Sunday
If Bloomberg is correct, it would appear as if working through the weekend was a lucky charm, with Bloomberg reporting that a deal has been reached. In a statement released by Norwegian on Sunday, CEO Jacob Schram said that loan guarantees were “crucial to getting through the crisis.”
In a separate statement carried by Bloomberg relating to Monday’s shareholder meeting, Norwegian announced that it now has strong support from its aircraft leasing companies. This is, of course, good news for Norwegian Air and its passengers, as more competition equates to lower prices.
Much of course remains to be done, but at least for now, it would appear as though Norwegian will be able to tap into the three billion-kroner ($290 million) of loan guarantees that are being offered by the Norwegian government.
There seems to be a lot of controversy surrounding governments stepping in to help airlines survive, and especially so when some of them reported dividend payments for 2019. Please let us know what you think in the comments.