Norwegian Air (NWC.OL), which is seeking creditor support for its rescue plan, has told bondholders it will overhaul its strategy in the wake of the coronavirus pandemic, according to an investor who took part in a briefing by the airline on Friday.
Norwegian shook up transatlantic air travel with cut-price fares, becoming the biggest foreign carrier serving New York and other major U.S. cities. But its aggressive expansion in recent years has left it saddled with high debts and fighting to survive, a situation made worse by the slump in air travel due to the coronavirus.
Last week the airline presented a rescue plan that would convert up to $4.3 billion of debt into shares and raise some new equity – wiping out much of the remaining value of the company’s current stock.
On Friday, Chief Financial Officer Geir Karlsen presented some information about the plan to bondholders in a conference call that lasted less than half an hour. Shareholders were not invited.
“They said they were assessing their strategy because the world would not be the same after this (pandemic),” Jan Petter Sissener, founding partner of asset manager Sissener AS, which holds bonds in Norwegian Air with a nominal value of $5 million, but also shorted some stock, told Reuters after the call.
Norwegian Air mostly reiterated what it had said in a statement to the Oslo bourse on April 8 and stressed the full details of the conversion would be presented to bondholders by April 27 at the latest, said Sissener. No bondholders asked questions, he said.
Norwegian Air did not reply to a request for comment.
Growing rapidly in the last decade to become Europe’s third-largest low-cost airline, Norwegian had accumulated debts and liabilities of close to $8 billion by the end of 2019.
On March 16, the company announced temporary layoffs of 7,300 employees, about 90% of its workforce, and the following day called on Norway’s government for help, saying it needed cash “within weeks, not months”.
Another bondholder, Eika Capital Management, said it was looking favourably on adopting Norwegian Air’s debt-to-equity plan.
“We are positive toward finding a solution for NAS (Norwegian Air Shuttle), including a conversion,” Bjoern Slaatto, CEO of Eika Capital Management, told Reuters.
Slaatto said Eika held “little” debt in Norwegian Air, without specifying an amount.
The talks may yet hit complications with another category of creditor, aircraft leasing firms, who can seek to repossess their planes if rent and maintenance bills are left unpaid.
On March 23, leasing company DP Aircraft (DPAD.L) said a unit of Norwegian Air had failed to make payments relating to two Boeing 787 Dreamliner aircraft in its fleet, which had been due on March 13.
Bondholders are likely to want lessors to take part in the debt restructuring, Bernstein analyst Daniel Roeska said in an April 14 note, rather than risk “a second round of debt/equity conversion a few months later, thus wiping them out”.
A source close to one of the lessors described the talks as a “long shot”, while conceding that collapsed aircraft demand could work in the deal’s favour. “If we had somewhere else to move our planes, it would be liquidation,” the person said.
Norwegian Air has been hit hardest among airlines during the outbreak of the coronavirus, with its shares down 87% over the past year.