There must be a sum of one billion unknown – E24

Back in March, Norwegian CEO Jacob Schram came out with a clear message: without help in the event of a crisis, the company would be weeks away from bankruptcy.

After the company managed to get the rescue package this spring, Schram quickly got back on track with the fact that the company will need more money before the new year.

The message was repeated several times during the presentation on Friday, where the accounts for the second quarter were presented.

– We will need more help before the end of the year to get through the winter, said CEO Jacob Schram.

– We have reduced the debt with the company by about 17,000 million in recent months. So we’ve bought time, but we still need more liquidity in the next six to seven months, CFO Geir Karlsen said.

But the company management has not yet said anything about how much and what type of financing they want to get now.

In the general meeting convening notice, Norwegian wrote that if the crown crisis, travel restrictions and weak market demand continue until the end of 2020, then “about NOK 2.2 billion will be needed for the second quarter. 2021 “.

– Many variables

– What makes it a bit difficult to tell is that some assumptions were used to get that number and you have to see what the assumptions are now, Karlsen told E24 on Friday.

– Something has gone in a negative direction, like we fly less now than we imagined three months ago. At the same time, we have received more payment deferrals than we expected, which is positive. There are many variables here.

In the quarterly report, the company describes that they “expect to obtain additional working capital” by:

• New financing (loans, journal.anm.)
• Additional issuance of shares in a private placement (fresh capital from equity investors, journal.anm.)
• A reassessment of the company’s business plan and scope of business.
• Sale and refinancing of assets
• or other sources of funding

– What do you want to put here? Do you need new capital and not just loans?

– It depends on what else we put in place with what we work. I think, for example, of fleet reduction, dialogue with banks and leasing companies and then wondering how much we fly, says Karlsen.

– We will not pay anything to the leasing companies before Easter. But what we have costs is keeping all of our planes “warm” even if they are parked. The engines must be started and the aircraft maintained. We have clear requirements from leasing companies that the aircraft must be kept in flight condition, he explains.

– Are you refusing to allow the company to borrow more?

– We have managed to reduce debt and have reduced our leasing costs by 20 percent. This means we have a lower cost of capital, but we will see where the liquidity will come from, says Karlsen.

– You have sued Boeing after a long dialogue on compensation for the problems with the Max and Dreamliner planes. Has the lawsuit had any effect on the dialogue?

– The fact that we sued Boeing was a huge decision. The relationship with Boeing has been built over the years and it has been good. It’s still there, but we haven’t found a solution we can live with, says Karlsen.

– I think both parties still want to make a commercial decision, but we are not there today. We are preparing for the case, so time will tell if we find a solution in the meantime.

Still burning in the bank account

Liquidity has been one of the most critical for airlines during the crown crisis. With a sharp drop in passengers and revenue, as the expenses of salaries, rent, air rental and loans continue to run, the money is purely out of account.

This is also why Norwegian has made it clear that it will need more money.

While SAS has estimated that they will spend between SEK 500 and 700 million more per month than they receive this year, Norwegian has estimated that they are between SEK 300 and 500 million.

– We are still in that zone, but we are probably at the top of that layer, Karlsen said, emphasizing that such calculations can vary from month to month and depend on what assumptions are made.

One of the things he traces is that Norwegian flies less than expected because the market is weaker than estimated.

At the same time, Norwegian has persuaded the banks to agree to defer interest and fees. $ 200 million (NOK 1.78 billion) that should have been paid in 2020 and 2021 has been postponed to the period 2022-2031.

Reduce the amount of money that comes out each month.

In addition, after the second quarter, the company managed to convert 1.2 billion in accounts payable and 300 million in lease debt into shares, and that it has negotiated more lease invoices that were due to be billed until April of next year for 300 million dollars.

CEO Jacob Schram highlighted one of the steps the company has taken to keep costs under control:

– We have a flexible cost base and we only use Norwegian based staff due to good Norwegian regulations on redundancies. We can take advantage of the flexibility of this system until the end of March, allowing us to lower and reduce production as needed.

New mess with credit cards: – Completely desperate

In addition to getting new financing, there is something else that could have given Norwegian a top-up on the account: the credit card companies.

This was a major problem for Norwegian last year, as credit card companies withheld money passengers had paid for their tickets (often until departure) out of fear of Norwegian’s finances.

This “cash crunch” is measured by dividing the company’s future expenses related to air traffic (Air Traffic Liabilities) by the outstanding accounts receivable that the company has not yet received into account.

The company already put it in the “red zone” when it surpassed 90 percent in the first quarter and 112 percent in the second quarter of last year. Last fall, this was up 167 percent.

Now it is 264 percent, but it is much smaller amounts in crowns. Last summer, Norwegian had outstanding accounts receivable of NOK 12.7 billion, while in June this year they were down to NOK 7.0 billion.

At the same time, corona has created a completely unfamiliar situation for airlines and card companies, the CFO explained:

– We have reimbursed our customers more than five billion crowns during the period (after corona, journal.anm.) And we have also offered to transfer the funds to the ATMs when we cancel or the passenger cancels, Karlsen said and continued:

– But this is a completely new situation also for card companies, which is demanding.

He explained that both Visa and MasterCard have prepared new guidelines. For MasterCard, this means that when Norwegian refunds tickets in points, the card company will not refund the money to Norwegian until the customer actually uses the points.

– It’s a big problem for us. Then they stay in the money until you fly and it’s completely useless to us, Karlsen said.