The fate of low cost airlines Norwegian will be influenced strongly by two key December dates. On December 7 the airline will hear whether it can gain full protection from creditors under Irish examinership legislation for its subsidiaries Norwegian Air International and Arctic Aircraft Assets. Parent company Norwegian Air Shuttle would also gain protection. Initial approval was granted in November and if the hearing is successful, the period could run for five months. The airline had received a cash injection from the Norwegian Government but was recently informed that it would not receive more funding, leading to it furloughing the vast majority of its staff and reducing operations to only six aircraft out of a fleet of 140. It was this that led it to seek protection under Irish examinership.
Norwegian faces key dates in December (Photo by Robert Alexander/Getty Images)
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On December 15, the airline faces a court case with Boeing, from whom it is claiming $1 billion in damages, including revenue losses from 18 737 Max aircraft which were not delivered as planned due to the grounding of that type. Success for Norwegian would add much needed liquidity. Boeing is seeking for the case to be dismissed.
Long Struggle
Even before the airline industry was hit by the Covid-19 crisis, Norwegian had been struggling to strengthen its finances. Over the last couple of years the airline has been turning every stone to reduce costs and raise liquidity. Routes have been cut, aircraft sold, deliveries and leases cancelled. There have been negotiations with suppliers, debt has been converted to equity, payment of bond holders postponed and additional equity raised. Much progress had been made and prior to the Covid-19 crisis, the airline was hopeful of returning to a sounder financial footing and profitability from 2021.
Misfortune
There is no disputing that Norwegian has faced misfortune from external factors over the last few years. Firstly, the airline suffered extended groundings of Boeing 787 Dreamliner aircraft due to problems with the type’s Rolls Royce engines. The role out of Norwegian’s long haul low cost network was predicated on the efficiency and cost economics of the 787. With the need to ground a proportion of the fleet for a period extending to around two years, flights had to be cancelled causing lost revenues or the renting in of less efficient aircraft at considerable expense.
On top of this challenge came the world wide grounding of the
Boeing 737 Max. Norwegian had planned to use this aircraft to expand services including extending long haul operations to markets for which the 787 was too big. Delivered aircraft were grounded and planned deliveries halted. As both of these aircraft issues played out, the Covid-19 crisis hit and the airline was almost entirely grounded for most of the summer period which is normally the time for peak revenue generation.
The fate of low cost airlines Norwegian will be influenced strongly by two key December dates.
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