Via Financial Times

Norwegian Air Shuttle has warned that the bulk of its fleet is likely to remain grounded for the next 12 months and that a full recovery would not take place until 2022, laying bare the scale of the crisis engulfing the airline industry.

As part of a planned $1.2bn debt-for-equity swap to try to ensure the low-cost airline’s survival, Norwegian said on Monday that its base case was that its fleet would remain fully grounded until April 2021, apart from the seven aircraft currently flying in Norway.

It would then begin a gradual ramp-up of both its European short-haul and long-haul operations to the US and Asia over the rest of 2021 before normal activity returns in January 2022.

Airline executives have warned that their industry is facing its worst crisis due to the pandemic that has brought flying to a near halt. Norwegian, one of the most leveraged airlines in the world, has been fighting for survival for the past two years, during which time it has held three emergency rights issues and watched its share price plunge by 97 per cent.

Norwegian warned its existing shareholders on Monday that they would be all but wiped out by its debt-for-equity swap and a fourth rights issue.

The low-cost airline added that it was hoping to convert 60 per cent of its bonds and 85 per cent of a convertible bond, as well as $500m from lessors into equity, which would leave current shareholders with 5.2 per cent of the share capital before a separate NKr400m ($40m) rights issue.

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The restructuring is part of Norwegian’s attempt to unlock NKr2.7bn of loan guarantees from the government to rescue the airline. It has long been viewed as vulnerable due to its rapid, debt-fuelled expansion into low-cost long-haul flights between Europe and the US.

Norwegian warned that its cash would run out in the second quarter unless it received the full rescue package from Norway’s centre-right government. Even with what it called a NKr3bn liquidity buffer, it estimated its cash burn would be NKr300m-500m a month from July, meaning that a further rescue plan would be needed.

Norwegian estimated that it would convert about 15 per cent of its total debt — or NKr8.9bn — into equity as well as raise NKr400m in fresh capital under its current plan. The moves would boost its equity ratio to well above the Norwegian government’s requirement of 8 per cent.

It is also asking to delay making any instalments or interest payments to creditors and lessors until July 2021.