Norwegian Air state aid falls short as bonds hit record low

Norwegian Air Shuttle ASA secured government funding worth up to $270 million under certain conditions, keeping it alive for now while the coronavirus still threatens to knock out the struggling discount carrier.

The bonds hit a record low on Friday after Norway attached strings to an offer of loan guarantees that would potentially give the struggling airline access to half of a 6 billion kroner ($537 million) for the industry. The proposal, agreed to by a majority of parties in parliament late Thursday, is contingent on efforts from current creditors.

“We’re going to work hard with these terms to secure these 3 billion,” Norwegian Chief Executive Officer Jacob Schram said at a press conference. “We’ll do everything in our power to achieve that.”

Norwegian Air shares reversed most of their earlier gains of as much as 28% and were little changed as of 12:53 p.m. in Oslo. They are down by two-thirds this year. The bonds sank to the lowest on record. Rival SAS AB, which will have access to 1.5 billion kroner of the total, traded 5.9% higher in Stockholm.

Norwegian Air was already saddled with debt when the coronavirus hit, and restrictions on international travel devastated its business ferrying people around Europe and across the Atlantic on low-cost flights. Schram pleaded for government aid this week after SAS got about $300 million in separate state guarantees from Sweden and Denmark.

On Monday, Norwegian Air temporarily laid off 90% of its staff and grounded almost all its flights.

“Norwegian has had financial challenges also before the corona crisis,” Norway’s Industry and Trade Ministry said in a statement. “Through this set-up we’re clear that both shareholders and creditors must contribute to a better financial situation for the company if the government is to offer guarantees.”

Norway will contribute 90% of the sum, on condition that commercial institutions commit to the rest. For airlines with an equity ratio lower than 8%, creditors will need to make efforts for the aid to be unlocked.

Norwegian will only get 300 million kroner initially, with 1.2 billion kroner coming available if current creditors waive interest and amortization payments for three months. To gain access to the second half of the 3 billion-kroner package, Norwegian Air will have to improved its finances, the industry ministry said.

The package is most likely too small and the conditions may make it impossible for Norwegian Air to access, DNB Markets analyst Ole Martin Westgaard wrote in a note to clients, saying the bankruptcy risk facing the carrier has significantly increased.

The Swedish krona bonds due 2022 dropped 6 cents on the krona to 45 cents, according to data compiled by Bloomberg.

Norwegian Air had about $7.5 billion in outstanding liabilities at year end, with more than $800 million of debt coming due by the end of 2020.

The company said it hired financial and legal advisers to evaluate the package and help develop a “sustainable financial platform.”

CEO Schram declined to comment specifically on the terms Thursday evening, and said he hadn’t yet spoken to any of the involved stakeholders.

Asked by reporters whether the guarantees would be enough to save the airline even if they were granted in full, he said the government seemed prepared to talk about further measures if the coronavirus crisis continues past June.