Norwegian news: bankruptcy of subsidiaries & pilot/crew cuts

Norwegian has been teetering on the brink for so long.

Virgin is asking the U.K. government for a £500m bail out too.

Well I have a bunch of Cashpoints with Norwegian that will likely be worthless now. And reservations from JFK-CDG in Oct that I’ll have to rebook with another airline.

Sad news to potentially (most likely) lose a competitor on TATL flights. Usually a good thing to have some entity working as a downward force on pricing.

And, to Dave, thank you as always for your detailed and well-researched posts, especially on the airline industry. Your efforts and interest are appreciated.

Norwegian Air seems to have more lives than the cat in this German short film, so don't bail yet, Rosebud. But it sounds like Norway wants its citizens' cash to go to a national carrier, not an international discount carrier (which makes sense to me!).

Yes Dave, thank you for keeping us updated on NA. Appreciate it.

Thanks, Eric and Susan. I love planes, airports, and the airline industry. I'm really sad to see what the industry is going through right now.

Norwegian's saga has fascinated me for quite some time. I've come to really like the people who are running it from listening to and watching quarterly investor presentations for a while now (even though, thankfully, I have no direct investment in any airline). I was really interested to see if they could pull off a turn-around; it's disappointing that all their efforts are being undone by the current global crisis.

Exactly what you just said Dave, i’m with you.

He wrote that Oslo had an interest in keeping the airline alive to
facilitate connectivity for its corporate sector

Just don't overestimate the government's interest in keeping Norwegian flying. It will be sad for them if Norwegian goes under, but far from a disaster. They are not essential for corporate connectivity.

But it sounds like Norway wants its citizens' cash to go to a national
carrier, not an international discount carrier (which makes sense to
me!).

Norway have already provided their flag carrier with 1.5 billion NOK in loan guarantees. Whether Norwegian will get any help as well (apart from the initial 300 million NOK) remains to be seen.

Virgin is asking the U.K. government for a £500m bail out too.

Have you read Branson's whingeing tweet? He claims that the £500m will be a loan rather than a simple cash bailout but we all know there'll be plenty of caveats attached to the repayment. If he's desperate for a loan then approach the banks or what about Delta? They own 49% of the airline. Then there's the multitude of other entities under the Virgin brand that he could look to divert money from. Virgin Galactic for example, is that more preferable to maintain than Virgin Atlantic? It stinks of wanting his cake and eating it, expecting the tapayer to bail him out rather than dip into his own pocket.

I'm pretty certain neither Branson or Delta would let Virgin Atlantic sink so I'm sure they'll find ways to keep it afloat using their own vast fortunes.

Branson owned Virgin Australia has entered voluntary administration (bankruptcy) but is continuing to fly.....for now.

Badger,

I agree that Norway has no plan to go to heroic lengths to save Norwegian, and it has established a high bar for Norwegian to get additional assistance — not only must the airline convert debt to equity, it must raise additional private funds, too, through a share offering. If the debt-for-equity swap is approved (in which debt holders exchange debt backed by deflated assets in a certainly dead company for stock in a probably dead company), the current depressed stock price goes lower. As I mentioned in a previous post, I guess Norway will be selling new stock at 10 cents per share (or perhaps preferred shares at 20 cents?). So, if the debt-for-equity swap goes through, equity holders then get the chance to decide if it‘s worth putting more money in a certainly dead airline to bump it up to probably dead.

At any rate, Norway has no interest in propping up Norwegian‘s ill-planned foray into transatlantic discount carrier (which falls on the prior CEO‘s over-expansion and the resulting crushing debt burden, not the current executive team‘s efforts to salvage the concept in some fiscally-responsible form). If the government wants to support anything, it‘s the intra-Norway network. Will Norway be willing to invest more beyond current promised funds if Norway re-structures into something that looks more like its pre-transatlantic discount self? I don’t know. You are in a better position to know the culture than I.

Branson only owns 10% of Virgin Australia, theother shareholders include, amongst others, Etihad Airlines and Singapore Airlines, both government owned airlines. The Australian government quite understandably questioned why it should stump up taxpayer support for an airline majority owned by foreign countries. Etihad were quite happy to pay £48m last year to have their name emblazoned on the shirts of Manchester City players so I'm sure they have means to secure some funding rather than rely on the Australian government.

I'm all for government aid in supporting stuggling firms in the travel industry and elsewhere but it sticks in the craw when companies owned by billionaires or state owned start bringing out the begging bowl to leech off the taxpayer and seek funds that are and will be vitally needed elsewhere.

Many travelers have been able to travel to Europe the past 4 years because of the low airfares that came from Norwegian Air Shuttle. I'm thankful for them for that reason on my 5 flights. Many don't realize that Norwegian Air Shuttle is the third largest budget airline in Europe--behind Ryanair and EasyJet. And we travelers need as much competition as possible.
But I can see many Boeing 787's in the near future being repainted other airline colors. Too bad Norwegian's planes have the wrong engines in them.
And it was good while it lasted.
To Be Continued . . . . . . . . . . . . . . .

I'm pretty certain neither Branson or Delta would let Virgin Atlantic sink so I'm sure they'll find ways to keep it afloat using their own vast fortunes.

Delta's 'vast fortunes'?

https://www.businessinsider.com/delta-coronavirus-losses-canceled-flights-2020-4

Delta CEO: We're losing $60 million a day as the coronavirus pandemic rages on

I'm not sure Delta can save themselves much less anyone else!

Last year Delta had a revenue of over $47bn and an operating income of $6.6bn. That's a lot of profit and a lot of money going to shareholders, which include the likes of such struggling firms as Goldman Sachs Asset Management, Berkshire Hathaway Inc. and many more. Are these shareholders likely to forgo their dividend payouts this year or are they looking to shift stock like some currently are?

Branson could easily save Virgin Atlantic, simply selling his Caribbean island would be enough. The man moved there 14 years ago to avoid paying income tax and now he wants the UK taxpayer to bail him out? To say he's got some nerve is putting it mildly.

So let's do the math.

Last year Delta had an operating income of $6.6 billion.

Today they are hemorrhaging $60 million a day

That means last year's operating income will keep them afloat for 110 days. Hmm....

And your other carriers aren't in better shape.
American Airlines (NASDAQ: AAL), the world’s largest carrier, has $7 billion in liquidity. But in 2019, it also had massive debt ($30.5 billion) and negative free cash flow. Given that its quarterly operating cost is up to $10 billion, the company doesn’t have enough liquidity to survive more than a month without flying.

(https://www.ccn.com/who-will-survive-the-covid-19-crisis-southwest-or-american-airlines/)

"United Airlines reports more than $2 billion losses as air travel hits its lowest levels in decades amid coronavirus pandemic"

(https://abc7chicago.com/united-airlines-coronavirus-illinois-chicago-economic-impact/6117821/)

BA staff are told the survival of the airline is at stake as it faces "a crisis of global proportions like no other".

(https://news.sky.com/story/coronavirus-more-serious-for-airline-industry-than-9-11-ba-boss-11957065)

The airlines will be doing good to save themselves. They can't afford to save their "sister carriers"

It's a fair point to question whether a guy who never turns down the opportunity to flaunt his persona as ultra-wealthy playboy before any available camera should liquidate a significant amount of his > $4 billion net worth before asking blue-collar workers to contribute their tax dollars to the cause of saving the airlines he started.

The US Airline Deregulation Act was approved October 24, 1978.

Wikipedia lists and dates the airlines filing US Chapter 7 and 11 bankruptcies:
https://en.wikipedia.org/wiki/List_of_airline_bankruptcies_in_the_United_States

Exposure to competition led to heavy losses and conflicts with labor
unions for a number of carriers. Between 1978 and mid-2001, eight
major carriers (including Eastern, Midway, Braniff, Pan Am,
Continental, Northwest Airlines, and TWA) and more than 100 smaller
airlines went bankrupt or were liquidated, including most of the
dozens of new airlines founded in deregulation's aftermath

Wikipedia will have to add a coronavirus chapter.

If the government wants to support anything, it‘s the intra-Norway
network. Will Norway be willing to invest more beyond current promised
funds if Norway re-structures into something that looks more like its
pre-transatlantic discount self? I don’t know. You are in a better
position to know the culture than I.

My guess: No. SAS and Widerøe have pretty good coverage of Norway, and they were financially sound before the virus. So even if the Norwegian government is richer than Croesus I don't think they are too interested in spending more money on Norwegian.

Many travelers have been able to travel to Europe the past 4 years
because of the low airfares that came from Norwegian Air Shuttle. I'm
thankful for them for that reason on my 5 flights.

But when the money you get from selling tickets to a flight is less than what it costs to operate a flight there is a problem.

Branson could easily save Virgin Atlantic, simply selling his Caribbean island would be enough. The man moved there 14 years ago to avoid paying income tax and now he wants the UK taxpayer to bail him out? To say he's got some nerve is putting it mildly.

JC, apparently Sir Branson heard your suggestion

It's not exactly a sale, but it would actually get cash quicker than a sale would

https://www.bbc.com/news/business-52354865

Sir Richard Branson has pledged his luxury island resort as collateral to help get a UK government bailout of his stricken airline Virgin Atlantic.
The billionaire Virgin Group boss said in an open letter to staff he was not asking for a handout, but a commercial loan, believed to be £500m.
The airline's survival was in doubt, and his Necker Island home in the Caribbean could be mortgaged, he said.

However, I hate to tell you but I don't think this alone is going to be enough Apparently Caribbean islands aren't worth what you think they should be.

Many travelers have been able to travel to Europe the past 4 years
because of the low airfares that came from Norwegian Air Shuttle.

Many travelers also faced disappointment on low cost carriers during that time, like...

• Norwegian customers who had their flight on a twice- or thrice-weekly route cancelled and lost a chunk of their vacation while waiting 2-4 days for the next flight to roll around
• Primera, Wow Air, and Thomas Cook passengers who were left stranded with little choice but to buy costly walk-up fares on other airlines when their low-cost carriers went belly up.

Jacob Schram, Norwegian's CEO, spoke great truth when he, during the Q4 earnings call that took place when he had been on the job 6 weeks, said, "I don't have the answer on what turns long haul profitable.... Trying to get low costs succeeding on long haul, nobody [has] proven that business model yet."

He was game for the challenge, though. It greatly saddens me that COVID-19 is destroying his chance to try to prove that model. Maybe Jet Blue will do it when... if?... they get around to flying transatlantic routes. I've got to think, though, that the 2021 start date for that will be pushed far down the road.

As for Richard Branson, I tend to agree with JC. It seems quite daft for Jane and Joe Taxpayer to provide corporate welfare (even if it is in the form of a loan) to a guy who lives on a private island (especially if he moved there in part or in whole to avoid paying the taxes that Jane and Joe pay). Uhhh... how about he turns the island over to the taxpayers as the fee for receiving the loan? You shouldn't get to keep living on a private island when on the public dole.

@ Carol.

I already knew that Branson had offered his island as collateral for a potential loan before I wrote my comment and I also acknowledge that in itself it is apparently worth £50m which is far short of what he requires. The point however is why should a man who moved to an idyllic island on the other side of the world in order to avoid paying income tax for over 14 years have the audacity to turn to the British taxpayer and seek bailing out? Why should a man who sued the NHS (we still don't know how much for!) because he failed to secure a contract to supply children's care be bailed out by the taxpayer who he evidently has scant regard for?

The man is worth billions. He may not have billions in the bank at the ready but his investments and commercial interestes are vast. He can secure the funds easily and as other wealthy business leaders have already suggested (and done so themselves), why not approach a bank for a loan? Is it because a bank would require more stringent conditions on repayment and collateral than the UK government?

And where is the US government in all this? As Virgin Atlantic is 49% owned by Delta Airlines surely they should be stumping up half the money required. Would the US government have any appetite for such intervention? Delta may claim that they are losing $60m a day but perhaps they should reflect on their aggressive expansionism, particularly in Latin America, which might have left them with sufficient funds to weather the storm had they not done so.

Delta may claim that they are losing $60m a day but perhaps they should reflect on their aggressive expansionism, particularly in Latin America, which might have left them with sufficient funds to weather the storm had they not done so.

Setting aside Delta's policies, I'm not sure there is anything any airline could have done or not done to have "sufficient funds to weather the storm."

JC,

It's pretty apparent that you should have been running the airlines as you obviously would have had several billion in cash just sitting in reserve waiting on this crisis LOL!

It's really up to the governments involved. Do they want to let the airline go and therefore lose ALL the jobs/revenue or do they want to help out. Your "attack" on the owner aside there are a LOT of other people who depend on the airline to pay their day-to-day bills. For you it's personal because you have decided Branson is the source of all evil it appears. That's fine, but realize that the economic "trickle" down impact will be large and will effect others probably more than Branson. He will be fine without his airline. The question is will the rest of the economy suffer more from supporting the airline or letting it collapse.

But I don't think that blaming airlines for expansion or expecting the US Government to bail out a European carrier is a realistic approach.

I agree with Eric NO airline could have seen this coming nor could they have realistically been expected to have cash reserves to deal with a 90% reduction in revenue. Airlines have never had "negative" bookings to this extent before even after 9/11.

BA hasn't asked for funds yet, but the longer this drags on the more likely it is that they will have to do so. Their 'assets" (planes, landing slots, etc.) are basically worthless (No, no one needs a giant jet this week) so since they don't have an island to mortgage someone will eventually have to give them cash I expect.

So far as travel goes - which is what we're meant to be talking about - would VA disappearing affect many travellers that much? The profitable routes will be taken over by other airlines that survive. Frankly, it seems the same with Norwegian - it is all very well offering cheap trans-Atlantic flights, but if you can't make any money on them then it's hardly a long-term business idea, virus or no virus.

It makes much more sense for governments only to subsidise routes that provide connectivity between places where flights couldn't be commercially justified by the private sector or where losing the airline would be a major economic blow - neither apply to VA (how many different airlines flying between London and New York do we actually need, the loss of one minor player won't make much difference to competition)?). As for Norwegian, the virus may deliver the coup de grâce, but the airline seems to have been mortally wounded for a long time now through a mixture of bad business decisions and some bad luck.

Carol, I haven't been patronising to you so it would be decent of you if you could refrain from patronising me.

Of course an airline's collapse affects a number of people down the line, I'm not of the mindset that only Richard Branson will be affected! However, there are other options Branson can take. Why can't he obtain a bank loan? Other millionaires have done so in order to preserve their businesses, what's so unique about VA? Branson has significant and I mean SIGNIFICANT wealth, it is not beyond reason to expect him to secure finances to shore up VA, he doesn't NEED the assistance of the UK taxpayer.

Delta Air Lines Inc is an American company that owns a 49% share of VA therefore it is not solely a British company so why should it be incumbant upon the UK government to fully support VA financially? Is it not reasonable if the company is seeking government aid for it to request assistance from the US government as well?

@Eric & @Carol Fri 12.45pm

May I suggest that you check out Qantas. Yes, no U. Publicly listed on the Aus share market. Has advised the stock exchange it has cash and bank line of credit to see it through. Is not begging for government handouts. (I am a long-term shareholder.) Has yet to ask shareholders for money. I guess not the sort of financial item likely to make The Times or WSJ. Makes some highly paid executives appear as if they are only interested in their take home monies and not the future of the airlines, they purport to manage/own. However, I doubt any politician in this country would ever allow the flying kangaroo to go down.

As far as Virgin Australia is concerned, had too much debt. I for one do not want taxpayer’s monies being invested into the current Virgin structure. Unlikely to get a return. Deloitte’s is the administrator and reports that it has seriously interested parties. Will be good if they can pull it off.

In the past I have seen comments on this forum that Australian airfares are expensive. Perhaps the answer is now obvious. I consider myself lucky that I can afford them.

Qantas shut down operations early on. Qantas and Virgin continue to fly limited routes, in coordination with state and federal government. The government financial support they receive is to ensure things such as social distancing seating, freight, postal, movement of essential personnel, return of recalcitrant citizens etc and make up any operation loss.

Eric and Carol, I am not trying to belittle you but rather alert you and others as to what is happening here. Airlines can be run correctly and not beg governments for money every 10years or so.

@Frank II

I enjoy your posts but need to make a technical correction. In Aus individuals go into bankruptcy, businesses into liquidation. The administration process usually results in the administrator trying to find a buyer for the business. Order of priorities for payments in this country is staff are paid all their entitlements first. Then taxes, followed by other creditors, then shareholders. Not likely to be any left in this case. The shareholders can claim tax losses in their own countries. Hence Branson can a tax loss claim on his own island. See why he wants a government bailout?

A general comment. So far in Australia 76 deaths and decreasing report of new cases. 18 today. Virus is being supressed and hopefully eradicated. Maybe I am too optimistic.

Stay home, stay safe and stay healthy.
Regards Ron

The plan unveiled today would see existing Norwegian shareholders being nearly wiped out with them retaining only around 5% of the company as existing debt is swapped for equity.

This doesn't envisage Norwegian fully resuming operations until 2022, and even then it is likely to have shrunken down around its more profitable routes.

The rescue plan will be first put to bondholders on 30 April, leasing companies on 3 May, and shareholders on 4 May, requiring the agreement of all.

Norwegian has already defaulted on paying UK staff, whose April salary was due by Saturday.

The presentation about New Norwegian for those who are interested: https://www.norwegian.com/globalassets/documents/other/norwegian-air-shuttle-asa_presentation-to-bondholders_27-april-2020.pdf

Some brief comments on my side:

• Wilderøe is the most important airline for the Norwegian government to save, if it comes about internal and regional connectivity. SAS already operates and competes with Norwegian in all airports and almost all domestic and regional routes served by Norwegian.
• All airlines that attempted to compete as long-haul operators in the transatlantic market have failed, scaled back, scuttled plans after routes had been announced already, or were in financial distress.
• With hub-and-spoke airlines, many of them having adopted several principles of low-cost carriers (a-la-carte pricing...), on better financial footing than on years prior (before the covid-19 crisis), it is relatively easy for them to launch preemptive commercial strikes against new low-cost carriers serving a handful of routes, by aggressively dropping fares on connecting flights specifically on markets where low-cost carriers open new long-haul routes.
• fluctuating demand in low season is much more of an issue for low-cost carriers, unless one of them had some sort of global operation that shifted plane around the World to meet different seasonal travel peaks

Post covid-19, I'd expect (just an informed guess, I have no industry information on such actual plans) that major airlines and their alliances will try to keep coverage and frequency by consolidating routes. So we should all expect more or less the same ability to travel within reasonable time between Stocklholm and Salt Lake City, but that will require more transfers in the way.

Yesterday was supposed to be the first big hurdle for Norwegian when the bondholders would accept or reject the plan. For the plan to go through, two thirds of the bondholders need to accept it. The deadline was originally 16.00 CET but negogiations took time and Norwegian extended the deadline to 23.00 CET and sweetened the deal a bit, but this might not have worked. At the moment (12 CET) there are still no news about the outcome.

No news is good news is sometimes said (and in many cases true), but in this case who knows? I get the feeling that if the bondholders had accepted there would be press releases sent everywhere just seconds after it was signed.

I was following throughout the day yesterday, too. I read that Norwegian's "final offer" to bondholders was made 1 minute before the original deadline, prompting the extension. While the sweetening of the deal was pretty mild (and perhaps not enough), I would guess any sweetening probably further enrages shareholders, who decide on May 3 whether to accept the deal that makes their currently worthless shares really, really worthless.

I also agree that Norwegian's past behavior with respect to such things would lead observers to expect a celebratory press release moments after a deal had been struck. That there is not one some 16 hours after the deadline is curious at best.

And now we now the reason for the silence. The bondholders didn't like the plan: https://www.devdiscourse.com/article/health/1032555-norwegian-air-bondholders-reject-debt-conversion-plan-but-talks-continue

Any one have a warm fuzzy feeling about this?

My sympathies to those staring into an empty bag

This is starting to feel a lot like Air Berlin's and WOW's last days.

At this point, it seems almost merciful for someone to step up and put Norwegian out of its misery.

I wouldn't be surprised if Norwegian declares bankrupcy next week. But, I read a more detailed article in a Norwegian newspaper and the company was apparently rather close to get the support they needed for the plan to go on the next stage. So the negotiations will continue over the weekend.

For those who want to practise their Scandinavian: https://e24.no/boers-og-finans/i/jd233o/ikke-nok-obligasjonseiere-sier-ja-til-norwegians-redningsplan

And Norwegian has managed to get the support needed from the bondholders and leasing companies. So now they will try to get the shareholders to agree to the plan.