Norway’s government saves Norwegians with a loan guarantee of $ 543 million – but is that enough?

Many in the Norwegian Parliament have criticized Norwegian Air for taking too many risks and getting into debt. But now a majority has agreed to hand over most of a government aid package for the aviation industry in connection with the coronavirus to the ailing airline.

Norwegian started the crisis by just canceling 22 long-haul flights while other airlines that rely more on business travel fared far worse. But when the governments started restricting travel and Close borders, the situation escalated quickly. Four days ago, Norwegian temporarily laid off 7,300 employees as 85% of its flights were canceled.

Norway’s government is committed to maintaining a comprehensive and competitive aviation sector in a country that relies on air travel for geographic reasons. Norway’s 5.3 million people are spread over a vast area, and even communities that are close on a map are often separated by fjords or mountain passes.

Norwegian the great beneficiary

Half of the crisis package of 6 billion Norwegian kroner (543 million US dollars) proposed by the government will be made available to Norwegian. Support comes in the form of government guarantees for bank loans.

Norwegian CEO Jacob Schram desperately called for a cash injection last week. The combination of falling demand and border restrictions around the world put in place to contain the spread of the novel coronavirus COVID-19 brought the airline to the brink of bankruptcy. Schram said the government support shows the aviation industry has been heard and called the loan guarantees “very positive”.

Scandinavian Airlines – the received similar support from the governments of Denmark and Sweden earlier this week – are entitled to 25%. Norway’s Widerøe, a mainly domestic airline serving many remote communities, is entitled to the last 25% but has also received a financial boost in the form of income guarantees on its public service obligations.

But there is a but …

However, the loan guarantees come with a long list of conditions. The government is demanding that airlines must have at least 8% equity at the end of the last quarter to qualify for full support. Norwegians don’t.

The government will provide a loan guarantee of Norwegian krone 300 million ($ 27 million), but in order for the airline to get a second guarantee, its creditors will have to waive interest and postpone payments by three months. The final amount will not become available until Norwegian reaches the 8% capital requirement.

Is it enough to keep Norwegian flying?

Schram said the airline will “do everything in our power” to meet the terms of government assistance.

But even if it does, it may not be enough. “It is very difficult to judge from the outside whether that is enough for Norwegians or not. Knowing that the Norwegian authorities guarantee the loans will help Norwegian, but it is too early to say whether that will be enough, ”said Bernstein analyst Daniel Roeska E24.

That’s because a big part of the fate of Norwegian – and that of most other major airlines – is how long coronavirus-related travel restrictions remain in place. Right now that’s a big unknown.

This uncertainty has made Norwegian stocks a hot potato. The company was trading on the Oslo Stock Exchange suspended this morning based on a technical investigation into pricing. On the opening day, the price shot up 28% before falling again. The short-term volatility follows a clear downward trend in which almost 80% of the company’s value was destroyed in just five weeks.

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