Opinion: Nationalising Norwegian a mixed blessing for lessors | Analysis | Airfinance Journal

Opinion: Nationalising Norwegian a mixed blessing for lessors

Speculation in the local media that the government of Norway is considering a part nationalisation of Norwegian to secure its future could be viewed as a mixed blessing by its lessors.

Norwegian broadcaster TV2 quoted Jon Gunnes, the transport policy spokesman for the Liberal Party which forms part of Norway’s coalition government, as suggesting that ownership by the state of a part of the airline for a short time could help it survive the current crisis.

The Oslo-based airline has already benefited from NOK3 billion ($267 million) of state support, but only after a long and tortuous debt for equity process that left it majority owned by lessors and other creditors.

Should the Norwegian government decide to pursue any form of nationalisation this would appear to present a mixed blessing for those lessors that agreed to the carrier’s debt for equity plan.

On the one hand the move could save the low-cost carrier and ensure payments once again flow to the lessors.

“It’s probably on balance a good thing because at least if you are going to get paid something you know it’s going to be Norwegian government backed,” says one lessor source with exposure to Norwegian.

“The reality of the last restructuring was that even Norwegian said it might not be enough, so people went into it knowing that it was the best bet at the time no matter how unsatisfactory it was in total, but they would need something else.

“So if this saves them (Norwegian) at least people know that they are going to get to the end of the leases with them,” he adds.

On the downside, it could be expected that part nationalisation would come in the form of a shares issuance in which the state would participate, as carriers such as Finnair, Icelandair and Lufthansa have pursued or are pursuing.

Such a solution would see the value of the shares that lessors and bondholders spent so much time and negotiations securing likely diluted further.

In May Aercap and BOC Aviation became the largest shareholders in Norwegian following the completion of the carrier’s first round of debt-to-equity conversion in May.

The Dublin-based lessor acquired almost 16% of the shares in the Scandinavian carrier, followed by BOC Aviation which held 12.67%. The latter has since reduced its holding to just under 10%.

These figures may have changed following further debt conversions.

Aercap also has an influence now in Norwegian’s executive structure; its chief risk officer Anton Joiner is a board member, while chief executive officer Aengus Kelly sits on the airline’s nomination committee.

Norwegian’s share price fell off a cliff during the course of late 2018 and 2019 as the carrier’s cash haemorrhaging and successive abysmal financial results seemingly spooked investors.

The share price is now rock bottom at less than a dollar per share so in that sense the lessors will not be expected to take a big financial loss in a dilution event, but the loss of influence may be more of a concern.

There is a likelihood that the government would demand representatives on the Norwegian board as has happened with other airlines that have been part nationalised. Such a move could dilute lessor’s influence on the board.

The Norwegian government could be expected to want to prioritise the carrier’s home markets and bases at the cost of its overseas operations and long-haul business.

This could risk the future of widebody aircraft currently placed with the carrier by lessors.

In a trading update in August, Norwegian’s chief financial officer Geir Karlsen revealed the carrier was experiencing difficulties over how to reduce its fleet of Boeing 787s.

Karlsen said that Norwegian had too many long-haul aircraft in its fleet given the lack of international travel demand and was seeking solutions.

The Oslo-based carrier has 37 787s, of which 26 are leased and 11 owned.

To divest between 15 and 17 aircraft would be a “difficult task, at least in this market”, he said.

Of the 11 owned 787s, Karlsen described a “very different market” from the narrowbody market in terms of liquidity and how easy it might be to sell such aircraft.

To remove more of the leased units also presents a problem because the owners of those aircraft are now shareholders in the company, he explained.

“I think coming from a situation where these guys have been part of a problem, because we have too many aircraft, we need and we are already discussing alternatives with these guys to take down the capacity on long-haul,” Karlsen said.

Government influence could tip the balance in these considerations.

The lessor source says that those with 787s placed with the Scandinavian carrier may need to accept that if they can keep their aircraft with Norwegian into the winter season then they should count that as a success.

“In this case the other complication is if Norwegian was an American airline and it went into Chapter 11, it would have done that number one and it would have rejected all of its widebody aircraft. But it doesn’t have that opportunity in Norway, because of the way the restructuring regime works, you almost go straight to insolvency,” he says.

“So the larger shareholders happen to be the ones who have all the widebodies and they should probably count themselves lucky that those aircraft are still flying, so on the balance I think they have to say it could be worse,” he adds.

This article has been updated since publication to include additional information.

Transaction SnapshotNorwegian Air Shuttle | Share issuance | 05-20 | NOK400m

Financial Close:
$39.20m USD
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