Norwegian files for bankruptcy
With the Government of Norway refusing to provide any more bailout money, Norwegian Air Shuttle ASA and its Irish subsidiary Norwegian Air International, based in the Irish Republic, along with its assets (leasing) company Arctic Aviation, have filed for what amounts to a version of Chapter 11 Bankruptcy protection in Ireland using the Irish Examiner legislation.
Norwegian chose Ireland because the leasing company which owns many of the aircraft is based in Dublin.
This bit may seem legal but its important to understand what it means for the airline: The process of Examinership in Ireland allows financially sustainable businesses to address elements of the business which require restructuring with the aim of protecting jobs and preserving the core value of the business. This protection, through a court appointed examiner, ultimately allows a company to secure new capital and implement a legally binding scheme for the settlement of debts.
Now you might remember just a few months ago Norwegian was promising the bond holders it effectively beat into submission, having lost nearly all of their money, that the airline would simply hibernate until the end of 2021. I said at the time you simply cannot trust their management to do that and they didn’t, continuing to fly Norwegian domestic routes, burning cash and making a loss. And they’re still doing it even while they go through the bankruptcy process!
The biggest question here is who is going to buy up the remnants of this appallingly run shambles of an airline? Who will bail it out with enough capital to keep it afloat? Right now you’d have to be an idiot to put any more money into this outfit – if Norway’s Government didn’t think it was worth saving, why should anyone else?
Norwegian has to be financially sustainable to be allowed to exit bankruptcy protection. The fact is, it isn’t. Without some sort of bailout it’s hard to see how it escapes this time. And yet over the past ten years, the airline, inflated by bombastic PR and smoke and mirrors financing, opaque deals and wooden dollar ‘profits’ invented by accountants, has pulled the wool over almost everyones eyes. Now its finally close to the end, and while the concept of it what it tried to offer was good, and many came to love it, other airlines and their execs knew all along it was a sham.
I remember about three years ago Willie Walsh, for whom I have no love, broke down the fare structure of a BA flight to the last detail, for a no frills economy flight from Gatwick that matched Norwegian’s destination and offer. He demonstrated that there was no way on Earth they were even making enough to cover the cost. Indeed the vast majority of the fare was taken up with UK airport charges and departure taxes.
When IAG offered to buy the Norwegian Group, Norwegian ran away from the deal so fast you could see smoke. The reason was simple, IAG would conduct due diligence investigations of its finances. Indeed many suspected that was the whole point of the offer in the first place. Norwegian leaping the fence and running off so fast told IAG – and anyone else paying attention – all it needed to know.
Norwegian funnelled money through its coffers, expanding demand, lowering prices, aiming to suck the cash out of the room to keep it expanding, always sucking in more fare paying cash customers. Until it couldn’t and from that point on, the whole thing started to deflate. And once it did, there was no stopping it. It might have survived without Covid 19, it might have survived if it had kept its word. Its chances now are thin at best.