Norwegian deal shows depth of turmoil in aviation finance
Lessors and bondholders had little choice but to keep Norwegian Air alive, but bigger losses will come as the industry gets used to its new normal.
Norwegian Air’s nail-biting $1 billion debt-for-equity swap with bondholders and lessors on May 4 has given the struggling airline vital breathing room, allowing it to access up to an equivalent of $290 million of state-guaranteed loans.
But according to one prominent aviation banker, the deal will just delay the airline’s eventual demise, at best through a takeover.
Even before the coronavirus crisis, Norwegian’s future was in doubt, after years of aggressive growth as a long-haul budget airline. It has posted three consecutive years of losses.
With only seven of its planes now flying, why did creditors agree to the rescue instead of repossessing the aircraft that backed its funding?
The obvious answer is that the devastating impact of the coronavirus on all airlines’ revenues meant that repossession was not a viable option, even for an operator as weak as Norwegian. It would have put a fleet of about 150 aircraft into a market in which the planes might have fetched only a fraction of the outstanding debt against them.