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Norwegian Forced to Issue Statement in Attempt to End Speculation Over Imminent Collapse

Norwegian Forced to Issue Statement in Attempt to End Speculation Over Imminent Collapse

Norwegian Forced to Issue Statement in Attempt to End Speculation Over Imminent Collapse

Whether unfounded or not, speculation over the imminent collapse of long-haul discounter Norwegian could prove its undoing if potential passengers suddenly get shy with spending their hard earned cash on tickets that may never be fulfilled.  A few days ago, several publications in Norway suggested the low-cost airline would collapse by year end – the news was based on an assessment by one analyst from Danske Bank but the rumour and speculation seems to be gaining traction.

Yesterday, in response to multiple requests for comment, the airline was forced to dismiss the news as “pure speculation”, saying the airline’s “liquidity is satisfactory” and that Norwegian continues to “attract hundreds of thousands of new passengers every month.”

In an attempt to dissuade fears of the carrier’s impending demise, the spokesperson laid out plans to “divest” or sell a large part of its aircraft fleet which will be key to improving its financial situation.

Essentially, Norwegian has financed its rapid and aggressive international expansion with a huge debt pile to buy a brand new fleet of widebody Boeing 787 Dreamliner’s and smaller 737’s.  A covenant of the loan agreement that Norwegian has with its financers is that it needs to maintain a certain level of overall equity.  The concern raised by Martin Stenshall at Danske Bank is that Norwegian is on the brink of violating the terms of its loans.

If Norwegian violates one loan then it could lead to other banks and financiers calling in their loans – a situation that Norwegian would be very unlikely to be able to afford unless it shuttered and sold off its assets.  It’s the very worst case scenario but 2018 has been a bloodbath for European airline bankruptcies and there are increasing fears that Norwegian could go the same way as the likes of Primera Air.

Clearly, with Norwegian already feeling pressure from rising fuel costs, expensive wet-lease operations because of problems with 787 Roll-Royce engines and aggressive competition from trans-Atlantic rivals this kind of speculation is a major headache.

In a further attempt to calm investors and passengers – and put a halt to rumours – Norwegian has published a further public statement which goes into a little more detail about how it plans to stay solvent over the next 12-months and beyond.  As semantics are everything, the airline called the statement a “year-end update” for the financial market – perhaps in an attempt not to directly reference the rumours.

As we exclusively revealed in November, the airline has now made public an ambitious cost-cutting programme that it calls #Focus2019.  Publicly, Norwegian says it’s aiming to save 2 billion NOK over the next 12-months but internally those savings are actually 3 billion NOK ($350 million).

“Six weeks into the program, we have already identified significant savings. The Company will update the market with results from #Focus2019 in connection with the announcement of the results for the first quarter of 2019,” the airline’s statement read.

In another update, Norwegian also said it had reached a compensation agreement with Rolls-Royce over the 787 engine problems.  Refusing to detail exactly how much Rolls-Royce would pay out, Norwegian simply said the agreement would have a “positive effect” in the first quarter of 2019.

And addressing the financing of aircraft, Norwegian says they are “pleased to announce that the financing for all aircraft deliveries for the first half of 2019 is secured” and that “divesting” other aircraft in its fleet (selling to lessors) “continues”.  There’s been much talk of a joint venture over Norwegian’s fleet although apparently talks to secure that deal is ongoing with “full force”.  Once again, Norwegian has refused to name the other party in the joint venture.

Airline execs will no doubt be hoping that this statement is enough to put an end to the speculation – at least for now.


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