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Norwegian Air Sued in U.S. Over Unpaid Refunds
Bursor & Fisher, a New York-based law firm, is leading a class-action lawsuit against Norwegian Air Shuttle over its actions to refund customers whose flights have been canceled due to the COVID-19 pandemic. It is estimated that Norway’s largest airline owes customers a total of between $200 million and $400 million, reported Norway-based media outlet Bergens Tidende.
The low-cost carrier must provide a response to the legal action taken by a group of American passengers who have not been reimbursed for canceled flights by June 22.
In the European Union, Norway and the U.S., airlines are obliged to reimburse passengers for the canceled flights within seven days. Although Norwegian declined to comment on the lawsuit, the airline’s press officer Andreas Hjornholm previously said that they were sorry for the delay in making refunds, assuring that those who asked for and were entitled to a refund would get one.
Norwegian’s Financial Turmoil
Scandinavian Airlines (SAS) — the flag carrier of Denmark, Norway and Sweden — also owes customers approximately $725 million. It is reported that flights that were canceled in March will be reimbursed in June, whereas the ones that had to be canceled in April and May will be compensated in September.
SAS press manager John Eckhoff assured customers that they will receive a refund, “if they wish.” He pointed out that SAS has been granted $340 million government aid in Sweden and Denmark, adding that they were working on a plan to raise capital. It is estimated that a share issue might raise the current capital of the budget carrier by up to 50%.
“In this context, the board of directors proposes that it be granted wide authorizations to issue new shares and convertible loans,” the airline said in a statement.
Norwegian Air had to ground most of its fleet due to the impacts of the COVID-19 outbreak on industry demand. The budget airline is currently looking to get approval from shareholders to sell more shares as soon as possible within the context of its restructuring plan.
The carrier, which also operates long-haul flights, previously secured a $300 million loan from the government of Norway after completing a debt restructuring and equity sale. The deeply-troubled budget airline had said that it would run out of cash in mid-May unless it received government aid.
According to the annual report released on June 9, if the pandemic continues to force Norwegian into hibernation, the company estimates that it will need approximately $235 million financial aid during the second quarter of 2020.
Norwegian Chief Executive Officer Jacob Schram is, however, optimistic about the future of the airline.
“There is no doubt that air traffic will bounce back and we will be perfectly positioned strategically and geographically to take advantage of this,” Schram said in a statement.
Norwegian’s fleet consists of around 160 aircraft, including Boeing 737NG aircraft used to operate for short- and medium-haul flights and 29 Boeing 787 Dreamliners for long-haul routes. It seems that Europe’s fourth-largest low-cost carrier will completely discontinue the long-haul flights that sank the company into debt.
The Oslo, Norway-based airline already cut its long-distance routes from Stockholm and Copenhagen to the U.S. and Thailand last year. The company said that the long-haul market to and from Scandinavia is small compared to large cities like New York, London, Los Angeles, Paris and Rome.
“We are continually evaluating our route network to make sure we’re meeting market demand,” said Matthew Wood, Norwegian’s senior vice president for commercial operations.
Long before the novel coronavirus pandemic, the budget airline was also hit hard financially due to technical issues with the Rolls Royce engines of its Boeing 787 Dreamliner fleet that were operated on long-distance routes. The flight cancellations and delays had already cost the company a lot, which can also be regarded as one of the causes of the airline’s current fiscal turmoil. Additionally, the widely-publicized issues surrounding the Boeing 737 MAX had added more economic burdens to the company.
Norwegian has lost a third of its capacity as a result of coronavirus infection control measures put in place by the Norwegian government. The government had ruled that there must be one empty seat between passengers not belonging to the same household, making Norway the only country to require airlines to block the middle seats. However, it was recently announced that the requirement for an empty middle seat had been removed, which will increase capacity. This was likely because, if Norwegian entered the holiday season with limited capacity, it would lead to additional financial troubles.
While the airline is struggling to preserve cash and raise capital in a bid to survive and get back on track, the lawsuit will likely put additional financial stress on the company.
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