Norwegian Air gets lifeline but it may not be enough

By Victoria Klesty

OSLO (Reuters) – Budget carrier Norwegian Air (OL:) may struggle to meet the tough conditions set by the government as part of its financial aid, raising fresh doubts about its liquidity as coronavirus inflicts more financial pain on the airline sector.

Norway on Thursday said it would will back airlines with credit guarantees worth up to 6 billion Norwegian crowns ($537 million) to weather the coronavirus crisis.

Half of that would go to Norwegian Air provided that it could convince commercial lenders to supply a further 30 million crowns for an initial guarantee of 300 million.

To receive the full 3 billion, the company must first persuade creditors to postpone installment payments for loans and forego interest payments for three months.

DNB Markets analyst Ole Martin Westgaard said in a note the package was likely too small, calculating that it would only cover the total cost of grounding all Norwegian Air aircraft for one-and-a-half months.

“We are doubtful the company will be able to attract any interest from a commercial bank at interest rates that would make sense,” Westgaard said.

The stock was down 2.4% at 1227 GMT, after surging by over 20% in early trading as euphoria over the deal fizzled.

The carrier, which has grounded most of its aircraft and is temporarily laying off 90% of staff due to the virus pandemic, has lost more than 70% of its value this year.

The airline was suffering big losses before the virus hit and has been hemorrhaging cash in recent years after a rapid expansion into transatlantic routes.

Westgaard added that he believed that the requirement to get creditors onboard would be almost impossible given the complex financing structure.

At a later stage, it would also need to raise some 2.7 billion crowns through a share issue, which is staggering given the company’s market cap of just 1.8 billion, he added.

“We believe this will prove challenging – if not impossible – given current market conditions,” Westgaard said.

Other airlines in the shattered global aviation sector are also counting the cost of government support as politicians around the world set out conditions for bailouts needed to absorb the shock of the pandemic.

Other conditions include provisions that loans may convert to government equity stakes, with Air New Zealand’s (NZ:) bailout dependent on suspending its dividend and paying high interest rates. U.S. airlines cannot increase executive pay or provide “golden parachutes” for two years.

Norwegian Air said late on Thursday it welcomed the government’s offer to provide liquidity but said it was too early to comment on the specific conditions set.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Category Latest Posts

You May Also Read