“New Norwegian” revealed, if anyone wants it

Rapid expansion, opaque and complex corporate structures, sent the airline from obscurity to pompous over-hyped long haul LCC in ten short years.

Now it says it will run out of money and be bankrupt by May 15th.

The plan, is to basically wipe out its existing shareholders, get its bond holders and lessors to accept shares in a new, state bail-out supported company so that it can survive. It won’t get the state bail out unless they agree.

Norwegian expects an almost two-year ramp-up to a “new normal” level of operations. It foresees its hibernation phase – almost a total grounding of its fleet – to continue until summer 2021. That period is all about cash preservation and preparing for the ‘New Norwegian’. 

Crucial to the New Norwegian is a reduction of at least US$500 million in aircraft lease obligations. That’s a massive ask of the companies who have ownership of most of its aircraft. In a proposal that would convert debt to shares, if leasing companies accept the idea, 53.1% of New Norwegian would be owned by lessors and 41.7% by bondholders. The later are those who are due to paid back the money they leant the airline in expectation of their cash back and a fixed percentage, but won’t now get a penny. All the other share holders who exist now, will be reduced to just 5.2% of the shares – a massive reduction of 94.8%, so they’ve basically lost their investment.

Norwegian is saying that essentially, it doesn’t expect to be back to full operations – in a very different format and lower level, until January 2022.

The four pillars the airline is suggesting see a reduction in 35% of its staff and 34% in its fleet.

Its also expecting huge flexibility and short contract operations from its staff, ultra-tight cost controls (something its been rubbish at from day one), and all sorts of hot-button hype about cost containment and efficiency.

Lots of buzz phrases that anyone can say but few are disciplined enough to implement fill the columns, “drive improvements’, digitalise the business’, ‘manage and prioritize’ – all of these are meaningless without comprehension and management capable and willing of remaining totally disciplined. Unless they’re prepared to fire almost every manager that works for them and start fresh, it seems hard to imagine how they do any of this well enough to meet targets that they themselves will set. It’s just words on a page, and investors need to see that. The airlines track record says it can’t do any of this well.

Currently Norwegian has a fleet of 168, and they want to cut New Norwegian down to 110-120. It does intend to keep long haul, which some investors will worry about. Its plans are basically dump every long haul non-hub airport and fly only hub to hub, using JetBlue and easyJet to feed its long haul operations.

The plan is to cut non-Nordic seats the most, leaving the Scandinavia market mostly intact, cutting but revising the long haul, but seriously reducing its rest of Europe and near-east operations.

Having presented the option and the plan to the people who stand to loose the most, they have to decide what to do next. Leasing companies could easily say no and walk away, taking their aircraft with them – in any other scenario they might have, but if they take the aircraft back, who will use them? Weeks ago they could have sold them on in a short order, now they’ll be sat on them for possibly years. It’s in their interest to say yes. What do they have to loose?

Bond holders too, are facing loosing everything or having something. But do they think its worth trusting Norwegian to do what they say? How much will it want in a year? In two? Will it work? Is it better just to walk away or throw good money after bad?

The question is can you trust Norwegian’s management to do any of this?