Breakingviews: Norwegian Air is lesson in bare-bones bailout

Norway is offering a lesson in how to limit state support, even in dire times. Its $292 million of taxpayer-funded bailout of Norwegian Air Shuttle will only be extended if creditors agree to swap $4.3 billion of debt for the budget carrier’s nearly worthless equity. Even then, it’s only enough to resurrect Norwegian Air as a run-of-the-mill regional airline, rather than the swashbuckling transatlantic revolutionary that the company once aspired to be.

The rescue plan, announced on April 8, leaves shareholders between a rock and a hard place. If Norwegian Air’s creditors, who include bondholders and aircraft leasing companies, don’t give the deal the thumbs up, the company will collapse into bankruptcy and shareholders will get nothing. And if creditors give it the green light, equity investors will be diluted almost to oblivion. The airline’s market value was just $50 million at one point on Tuesday.

Creditors may have limited interest in sending the company over the edge. Many of Norwegian Air’s debts are secured against fixed assets like aircraft hangars or planes. In the current environment, neither is worth much but that will change once the pandemic is over. That suggests the airline may get approval for the debt-for-equity swap, allowing it to boost its ratio of shareholder equity to assets to above the 8% needed to unlock the government’s lifeline.

But even then, Norwegian Air will emerge a very different airline from the one that, under now-ousted founder Bjorn Kos, splashed out on dozens of new planes, including the ill-fated Boeing 737 MAX, and loss-making routes to become the biggest non-U.S. airline serving the New York area. At just 6% of last year’s operating costs, the state rescue package is nowhere near enough to support a phoenix-like revival of Kos’ dreams. Many of the 7,300 staff laid off temporarily last month may therefore never come back. But taxpayers and its new shareholders may yet salvage something. Shorn of staff, planes and slots at fancy foreign airports like London’s Gatwick, Norwegian’s only real option is to try to come back as a humble regional rival to Swedish and Danish-owned carrier SAS. As a large, thinly populated but wealthy country, Norway needs decent airlinks. That will take Norwegian Air back to its roots.

_____________________________________________________________________

Request a free trial of Breakingviews here