Is Norwegian Airlines Really About To Go Bankrupt As Discussed In The Media ?

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During the past 2 weeks there have been a variety of discussions in the news media about the financial situation of Norwegian Airlines and that are about to face bankruptcy in the wake of the new year.

2019 is now here and Norwegian is still flying with management having undertaken measures to streamline the company, whacking it into shape again so to speak.

As a low cost carrier Norwegian was able to expand rapidly over the past years and operated more and more routes to popular acclaim. Unfortunately for them as a European carrier they’re also subject to EC261/2004 legislation and that means their business model can go down the river quickly if things go down the river and irregular operations require the carrier to pay compensation and care for passengers.

Norwegian also has acquired several new aircraft in recent past – some of which are now being sold off again and the schedule trimmed down in an effort to take the pressure off the balance sheet.

You can access some financial details of Norwegian Air System from Reuters here.

During the last days of December 2018, The Telegraph reported a possible cash crunch issue at Norwegian which the carrier has denied.

Norwegian Air, Gatwick Airport’s third-largest airline, may have to go cap in hand to investors this Christmas as it spirals towards a new year cash crunch.

Danske Bank analyst Martin Stenshall fears the carrier will breach banking covenants at the end of the year unless it finds fresh capital. A breach could see the airline “land in an evil spiral and the crisis will escalate”, he said.

The airline is in talks over selling part of its fleet, and major shareholders, such as boss Bjørn Kjos and British Airways owner International Airlines Group (IAG), could also be called to bail out the debt-laden operator. The airline dismissed the analyst comments as “pure speculation”.

The alarm comes as Norwegian Air faces a bill stretching into millions of pounds from the recent Gatwick shutdown. …

Although Norwegian’s stock market value is broadly unchanged this year, net debt has risen by around £800m to £2.5bn. Banking terms will see key financial ratios tested at the end of the month.

“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,” Mr Stenshall told Norwegian newspaper Dagens Næringsliv. …

IAG took a 5pc stake in Norwegian in April and opened talks “including the possibility of a full offer”. Such talks, however, subsequently petered out, with neither side definitely taking the deal off the table.

A spokesman for Norwegian Air said: “This is pure speculation. Our liquidity is satisfactory, we attract hundreds of thousands of new passengers every month and we are currently working on selling parts of our fleet, which will further strengthen our financial situation.”

Things can spiral out of control quickly for an airline which has shown time and time again with high profile insolvencies. As soon as there is uncertainty about possible payments to suppliers such as fuel companies these will demand cash or advance payment for their deliveries. Norwegian is still far from that (how far really though?) at this point but if something serious happens to their financial condition then something like this could seal their fate.

Conclusion

Norwegian has already sold off five of their Airbus aircraft and will reduce their schedule as well as increase the actual flying time (reduce downtime on the ground) of the remaining aircraft. This measure has calmed the mood of investors a bit though it might not be enough to return Norwegian to good fortunes.

The airline has been throwing cheap fares onto the market and made it possible to fly intercontinental for very little money but given how cheap Economy Class travel is even with legacy airlines these days I’d probably refrain from locking myself into a long term plan with Norwegian. Why take the risk, worry and potential hassle?

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