A Norwegian Air aeroplane approaches Riga International Airport in Riga, Latvia, January 17 2020. Picture: REUTERS/INTS KALNINS
A Norwegian Air aeroplane approaches Riga International Airport in Riga, Latvia, January 17 2020. Picture: REUTERS/INTS KALNINS

Norwegian Air  will give up the low-cost, long-haul business that made it a household name, returning to its roots operating shorter European flights under a plan to exit insolvency, and plans to cut 2,100 jobs.

The restructured airline would serve the Nordics and European destinations with about 50 narrow-body aircraft in 2021, rising to 70 aeroplanes in 2022, Norwegian Air said on Thursday in a statement. It seeks to raise as much as 5-billion krone ($590m) in new capital through a rights issue, a private placement and a hybrid instrument.

Norwegian Air’s flights to the US, Latin America and even Bangkok relied on a fleet of modern, fuel-efficient Boeing Dreamliner aircraft that sought to break the spell of other unsuccessful budget long-haul operations. Its retreat from the market will probably ease pressure on rivals such as British Airways and Virgin Atlantic, whose model leans on business travellers to turn a profit on long-distance flights.

Low-cost long haul operators have struggled especially after the Covid-19 pandemic decimated air travel. British Airways parent IAG, which at one point made a bid for Norwegian, has shut down its Paris-based OpenSkies unit, while AirAsia’s long-haul budget arm AirAsia X is in the midst of a restructuring process.

The Norwegian carrier sought creditor protection in November and secured court approval in December to attempt a restructuring under Irish examinership. Norwegian Air, which was already struggling before the pandemic, is part of a growing list of more than 40 airlines pushed into insolvency since the Covid-19 crisis upended demand for air travel in 2020.

Government stance

Key to the latest plan is the participation of the Norwegian government. It had rejected an earlier bailout, partly because some of the aid would be used to fund the long-distance business focused on London’s Gatwick airport and wouldn’t benefit Norway. A dialog is under way, the airline said.

The government received an application and is conducting a “thorough assessment” of the new request, Iselin Nybo, Norway’s trade and industries minister, said in a statement.

“What Norwegian is now outlining is something other than the request we considered in November last year,” the minister said.

About 2,100 jobs will be lost with the move, including 1,100 in the UK, a spokesman for Norwegian Air said. About 300 UK-based pilots will be made redundant, the Balpa union said in an e-mailed statement.

“Aviation remains in serious crisis,” said Brian Strutton, Balpa’s general secretary. “This is further evidence that the jobs death spiral I’ve been highlighting for months sadly continues.”

Debt binge

The carrier’s rapid growth fuelled a debt binge as the carrier ordered new aircraft and opened more routes. Norwegian Air is now seeking to reduce its borrowings to about 20-billion krone, it said in the statement.

Given the reduced scale of the restructured company, the targeted debt level leaves little room for shareholders, Sanford C Bernstein analyst Daniel Roeska wrote in a research note. Norwegian Air will be about the size it was in 2012, he said.

“It is more likely, in our view, that the current Norwegian will eventually have to be wound down,” Roeska said. “We still fail to see a clear path to equity value for the company.”

Norwegian shares fell as much as 12%, and were down 5.2% in Oslo. They’ve lost 98% of their value in the past year.

Under the restructuring plan, current shareholders would hold on to about 5% of the company’s equity. They would also be able to participate in a rights offering of up to 400-million krone.

Impaired creditors would receive about a 25% stake, while new investors would have 70% of the company through the issuance of new shares or the new hybrid instrument.

Bloomberg

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