Struggling airline Norwegian has been given a boost, after the Norwegian government said it would offer the company a hybrid loan, providing pre-set conditions are met. Norwegian is currently trying to exit bankruptcy protection in the Irish courts. The move comes after the airline announced it would end Long Haul flights due to the effects of Covid-19 on the airline’s finances.
Conditions of the Loan
The government backing to Ireland-registered Norwegian, announced on 21 January, depends on receiving court approval to a restructuring plan and attracting 4.5 billion NOK ($530 million USD) in investment. Norwegian presented its restructuring plan to the Irish courts on 14 January as part of the examiner process in which company’s are granted time to re-evaluate business models.
Kieran Wallace, of accountants KPMG, was assigned to the airline in November and given 100 days to devise a restructuring strategy.
Norwegian’s new plan has involved terminating all long-haul routes to instead concentrate on Europe, primarily connecting to Scandinavia. This has resulted in the loss of over 2100 jobs, including 1100 based at Gatwick, the base of its long-haul arm.
The reduced network will also reduce Norwegian’s fleet from 140 aircraft to 50.
Describing the government’s decision to offer state support, Norwegian CEO Jacob Schram thanked the government and said:
With a new business plan, and participation from the government, we are confident we can attract investors and get through the Examinership and reconstruction process.
We have received extensive support from political parties, customers, colleagues, shareholders, and business partners, for which we are extremely grateful, especially during these challenging times. Furthermore, the government’s support will contribute to help securing jobs and maintain healthy competition within the aviation sector.
A change of focus and a change of heart
The loan by the Norwegian government must also be approved by the Norwegian parliament, although this is expected to be a formality. Many of Norway’s opposition parties have previously stated they desired the government to intervene.
Norway’s government had previously refused to put funds into Norwegian as recently as November 9 after deeming the airline’s business model too focused on the long-haul routes out of Gatwick. At the time, the government said investment would have minimal benefit for the Norwegian people. Mr. Schram described the refusal as feeling ‘like a slap in the face’.
The new localised model, however, has been deemed more palatable. In a statement, Minister of Trade and Industry Iselin Nybø said:
Norway’s new business plan involves strong interventions in the company’s debt structure and the inflow of NOK 4-5 billion in fresh capital. The plan appears more robust than the one we said no to in October. That is why we are now positive about contributing.
Despite entering into the recovery process, the government has said it has no interest in being a shareholder or taking ownership of the company.
The possibility of state funding has helped Norwegian’s share price, which lost 98% of its value in the previous year. Shares on 21 January were up 13.33% on the previous day.
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