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Shareholders and some of creditors can lose almost everything in a bankruptcy, while Norwegian passengers risk more expensive tickets, according to experts.
FIGHT AGAINST THE CLOCK: Norwegian chief Jacob Schram is fighting for the airline to survive.
Stian Lysberg Solum
published:,
“When it comes to shareholder value, it depends a lot on whether or not they are saved,” says investment economist Mads Johannesen at Nordnet.
– If not, chances are you will unfortunately lose equity.
Norwegian management is working hard to save the company from the virus crisis that has plagued the entire industry.
Creditors and shareholders have billions at stake.
But passengers and society are also at risk of large losses, according to calculations by analyst company Menon Economics on behalf of Norwegian recently.
Have you read this Commentator on the E24 stock exchange: a good Norwegian letter in the game with creditors (+)
On Wednesday, the airline itself presented a sketch for crisis resolution, showing how they will secure the entire NOK 3 billion guarantee package from the Norwegian government.
The plan means that today’s shareholders will keep very little of the company. Norwegian must now bring in creditors to implement the plan.
Norwegian chief Jacob Schram has said that it is “weeks, not months” before the Norwegian collapse.
Exactly when it will happen without emergency help is unknown, but several have made estimates of when the company will run out of money.
The large bank HSBC has calculated that the cash register is empty during June.
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This is how Norwegian wants to save the company.
Think bondholders are risking big losses
– In the big picture, if you own a bond in a Norwegian bankruptcy scenario, then you’ve lost everything by a lot, says manager Arne Eidshagen of Forte Fund Management.
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He had previously sat down with Norwegian bonds in the fixed income fund he manages, but has been depleted.
Manage Arne Eidshagen in Forte.
forte
At the end of 2019, Norwegian had total loans of NOK 22.3 billion, financed through various financial institutions and loan schemes, as well as various bond loans and large lease commitments.
– Banks usually have a mortgage. There are some guarantees for bondholders, but the value of the guarantee has increased somewhat, says Eidshagen.
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Norwegian has three loans on the bond market, plus a so-called convertible bond loan. Investors here are everything from Norwegian fixed income funds to foreign hedge funds.
The loans are in euros, dollars, Swedish and Norwegian kroner. Measured in NOK, the bond debt amounted to NOK 5.7 billion.
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Investors have security for their claims through mortgages on various assets, but Eidshagen believes it is unclear what this security is worth in the current crisis market.
According to the loan document, one of the loans has a mortgage in a hangar in Gardermoen. Two loans have promised maturity in Gatwick, while the convertible loan is guaranteed by the Irish subsidiary Arctic Aviation Assets.
– Whether the deal is good enough to secure the value, or if there is any value now, is an open question, Eidshagen says of the Gatwick mortgage.
Norwegian has granted bondholders a mortgage on the departure times in Gatwick. Here from CEO Jacob Schram’s visit to the Gatwick base before the virus crisis.
Ole Berg-Rusten / NTB scanpix
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Estimate seven billion in more expensive tickets
One of the consequences of a possible bankruptcy would be weakened competition and more expensive tickets for passengers in Norway, according to Menon’s report.
Menon report
Gjermund Grimsby is a partner at Menon and heads the strategy, competition and evaluation department. Screenshot / Menon
According to partner Gjermund Grimsby, Menon has assumed that it will be two years before competition in the Norwegian market returns to its level.
“During these two years, we estimate that travelers would have to pay a total of NOK 7 billion more for their tickets than they would otherwise pay. This is a redistribution effect between air service providers and travelers, and not a purely socio-economic loss in itself.“Grimsby writes to E24.
The total economic loss to society is estimated at Menon at NOK 3.6 billion, as a result of rising unemployment and reduced competition in the aviation market.
The review company doubts that the new owners will soon be able to enter and take over the airline.
“Although in a normal situation, Norwegian will be a potentially attractive acquisition candidate for other airlines, we believe that in the current crisis situation, where the vast majority of airlines in the world face significant liquidity and market challenges, it is less likely that there are buyers that will propel the company forward with the current structure »Grimsby writes.
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According to the analysis company, job loss is “the most dramatic socio-economic consequence of a bankruptcy in Norwegian.”
The report indicates that the airline had around 10,000 employees in 2018, and that 2,400 of these were Norwegian jobs.
As a result of the crisis that is now affecting the entire economy and aviation, many of the employees will have difficulty finding new jobs, Menon believes.
– Unfortunately with black carpet
Shareholders who have been with Norwegian for a while have already seen much of the stock’s values disappear. On Wednesday, the market capitalization was NOK 1.35 billion.
Today, Folketrygdfondet is the largest shareholder, after the two Norwegian horses and founders Bjørn Kjos and Bjørn Kise have been heavily sold.
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Customers of the Nordnet online broker remain in the next spot with just over 5 percent ownership.
In the capital structure of a company, creditors are at the top of the ranking. They can compromise their claims, but in any case they will not be refunded more than the company owes.
Shareholders are further back in line. They have the potential to make big profits when things go well, but they risk losing everything if things really go wrong.
– Unfortunately, in the restructuring process, the shareholders are black. There are several who will be ahead of the queue, mainly creditors and bondholders, says Johannesen on Nordnet.
Nordnet investment economist Mads Johannesen.
Nordnet
– They are very unlucky
Norwegian was in the process of undertaking a comprehensive restructuring to return to profitability, but then the crown crisis hit completely.
It has knocked all aviation out of the game and governments around the world are now coming to the rescue in the form of various crisis packages.
Professor Frode Steen of the Norwegian School of Economics closely follows the aviation industry. He believes that Norwegian should be restructured by reducing long distance, where the company has struggled with profitability.
Frode Steen, professor at the Norwegian School of Economics.
Hallvard Lyssand / NHH
“I think it is early to speculate bankruptcy now, Norwegian has a lot of good if they can only handle a company restructuring,” Steen writes in a statement.
He thinks that a possible solution should also include reducing long distances and focusing more on the Nordic countries and Europe, where profitability is better.
Steen believes that various conditions have contributed to low profitability on long haul routes, including that “the combination of a new type of aircraft, especially before for narrow networks, and the disadvantage of lack of network / power at the other end they have been challenging and pose unnecessarily high risk. “
– And when they were very unlucky with the long distance at the top, it got expensive, Steen writes, noting that Norwegian had technical issues with Dreamliner at first and even issues with Rolls-Royce engines.
The Norwegian spokesman in Norway writes to E24 that the company has no comment on this matter and refers to company’s latest stock exchange announcement.
