“Braathen Air” has requested 1.5 billion state aid for start-up – E24

On Tuesday, airplane investor and heir Erik G. Braathen came in with the news that surprised many: he wants to start an airline.

Together with a group of people with aviation experience, including several former Norwegian leaders, he will launch the new Norwegian airline during the second quarter of next year.

The news came on the same day that the Hungarian low-cost giant Wizz Air announced that domestic routes will also begin, as early as November 5.

Braathen was open about the fact that he has been in meetings with the Norwegian authorities and requested financial support for the start-up.

In addition, the company must obtain an aircraft license (AOC), contract aircraft, hire pilots and cabin crew, and configure the route network before they are ready for takeoff.

E24 has obtained access to the request letter that Braathen has sent to the Ministry of Commerce and Industry. It appears that Braathen is requesting NOK 1.5 billion in state aid for the start-up:

• Up to 500 million in hybrid capital
• Up to $ 1 billion in government loan guarantees

The aviation entrepreneur writes that it is not possible to establish a new competing airline these days “without the goodwill of the financial state” because airlines across Europe have received state crisis aid “to an extent that we have never seen before.”

The letter indicates that Braathen has submitted the business model and financial estimates that form the basis of the investment.

Promise to pay

Braathen himself has said that he is willing to invest NOK 50 million in the new airline. He told E24 that it is “too early to say” how much capital the company will need until it makes a profit.

In the request to the ministry, however, it is noted that state capital (hybrid capital of up to 500 million) is only requested when private funds of the same size have been raised.

Based on this, Braathen believes that at least 1 billion shares are needed to get the company up and running.

– But a commitment to that state capital will be crucial to being able to raise capital in the private market, writes Braathen.

Braathen writes that the business plan stipulates that the state’s capital contribution “will be repaid in five years,” but that it allows the state to convert the hybrid capital into equity, if it so wishes.

When the new airline is up and running and the corona pandemic is over, “the state will have received its capital outlays back,” says Braathen.

Will use existing schemas

Hybrid capital is an instrument used by SAS, also in the recapitalization plan of the company under crown. It is precisely a hybrid between shares and loans, and can be redeemed or converted into shares. The main difference is that hybrid capital counts as equity, unlike convertible bond debt.

The Norwegian state entered the scene earlier this year with various crisis measures to save aviation, which was sent in the midst of crisis thanks to the corona pandemic, travel restrictions and the collapse in passenger numbers.

One of the most important measures was a government loan guarantee scheme with a budget of NOK 6 billion. Airlines that use the scheme must borrow the money privately and find other players who guarantee 10 percent of the loan, while the state guarantees 90 percent.

Braathen writes that the billion-dollar guarantee they are asking for “is based on the same framework as the existing scheme.”

While Norwegian was allowed to use 3 billion of the 6 billion mark in the mark, 1.5 billion was offered to SAS and 1.5 billion to Widerøe and other companies.

Norwegian has used its entire quota to date, while Widerøe has announced that it will borrow 500 million through the plan this fall. SAS has not yet used its quota. This leaves around NOK 2.5 billion from the guarantee framework as of today.

The Finance Ministry made it clear from the outset that the loan guarantee scheme was high-risk, because a provision for losses for the entire framework of six billion was included in the revised budget.

By comparison, only 20 per cent loss provision was made from the guarantee scheme for small and medium-sized companies of NOK 50 billion.

This is “Braathen Air”

Erik G. Braathen has yet to say what the new airline will be called.

What we do know is that there are plans to start flights from the second quarter of 2021.

The plan is to have five planes up front, either the Boeing 737-800 type or the Airbus A320 type, both of which are well-known aircraft types used by SAS and Norwegian today.

Erik’s new airline will focus on Norway’s main route network, as well as direct flights to ‘European destinations’, which include Scandinavia’s main internal routes.

25 people are already working full time on the project, but the goal is to increase to 400 employees by the end of 2022.

With him on the team, Erik G. Braathen has well-known names, including several previous leaders in Norwegian. The management of the new company currently consists of:

• Brede Huser, Former Director of Norwegian Reward
• Thomas Ramdahl, Former Norwegian Chief Commercial Officer
• Asgeir Nyseth, Former Norwegian COO
• Alf Sagen, has extensive Norwegian experience in various roles.
• Bjørn Erik Barman-Jenssen, former head of ground and cargo services at Norwegian
• Tord Meling, has experience with Deloitte and many years in Norwegian, including as head of flight financing.

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