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Low-Cost Long-Haul Pioneer Norwegian Air Faces Uncertain Future
Norwegian Air Shuttle is facing an uncertain future after the government of Norway this week advised that the airline would not receive any further financial support from the state. In response to the government announcement Norwegian’s chief executive officer, Jacob Schram, expressed disappointment and referenced the imbalance occurring within the aviation industry with regard to government support.
“The fact that our government has decided to refrain from providing Norwegian with further financial support is very disappointing and feels like a slap in the face for everybody at Norwegian who is fighting for the company when our competitors are receiving billions in funding from their respective governments,” said Mr. Schram.
The government of Norway had previously supported Norwegian Air with NKr 3 billion ($329 million) but has now ruled out any further assistance or possibility of nationalizing any of the country’s airlines according to Reuters. “It is a tough message to get. But we are answerable for the responsible use of public funds,” the Norwegian Industry Minister Iselin Nyboe said. The Norwegian government sold its remaining 9.88% share of airline SAS in 2018.
The Financial Times reports that in May Norwegian Air was able to convert NKr 18 billion ($2 billion) of debt into equity to access government support. However, it is reported that the airline still had NKr 48 billion ($5.24 billion) in net debt at the end of June. It had been stated in August that the airline’s cash reserves may run out within the first part of 2021. “I have no guarantees that we will manage it. We have the liquidity to get through some of the winter . . . It’s challenging, it’s important to say,” said Mr. Schram.
News of the government of Norway’s decision sent the value of shares in Norwegian Air down a further 13% resulting in a cumulative drop in value this year of 98.5%. The airline responded by announcing that a further 1,600 employees would be furloughed leaving only 600 employees to manage airline operations. Prior to the CoVid-19 pandemic Norwegian Air employed over 10,000 staff across a network that had a strong transatlantic focus.
Since the crisis, Norwegian has been operating just 21 of its distinctive ‘red nose’ aircraft from its fleet of 140 but this will now be further reduced to just 6 aircraft servicing domestic routes. Chief executive of the Ryanair Group Michael O’Leary has long predicted Norwegian Air’s demise and the Financial Times reports that only last week Mr. O’Leary said Norwegian would become “a small and largely irrelevant Norwegian domestic airline.”
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