Norwegian Facing An Uncertain Future: Lack Of Government Support
Norwegian Air has been turned down for a bailout by its home government. The Norwegian government said it did not see plowing more cash into the troubled airline as a good use of public funds. The airline has hit back, calling it a 'slap in the face' and stating that it contributes billions to the local economy.
No bailout for Norwegian
European low-cost airline Norwegian is facing an uncertain future as its government had confirmed no further financial support will be given. The company had communicated that a further bailout would be needed if it were to survive the COVID-19 crisis, but has been turned down by Norway's government. CEO of the airline, Jacob Schram, called it a 'slap in the face', saying,
"The fact that our government has decided to refrain from providing Norwegian with further financial support is very disappointing and feels like a slap in the face for everybody at Norwegian who is fighting for the company when our competitors are receiving billions in funding from their respective governments."
The airline received a cash injection of $29 million back in March as the pandemic's impact began to bite. Since then, it has been working to trim costs and raise cash, conducting a cut-price share sale in May. However, the airline lost $610 million in the first half of the year, and had called upon Oslo to lend further support to ensure its survival.
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Not a sound investment
The rejection of Norwegian's request for further support comes as a major blow to the airline and its workers, but was not entirely unexpected. Despite being a popular low-cost, long-haul provider, Norwegian was struggling financially even before the pandemic hit.
In a statement, the Norwegian government's Minister of Trade and Industry Iselin Nybø said that the decision was made because they did not see Norwegian as a sound use of public money. The statement read,
"Norwegian has asked for financial support in the billions, and the government has considered that in this situation there is no sound use of community funds."
According to the government, Norway has already committed up to NOK 14 billion ($1.5 billion) in total to the aviation sector over the course of 2020. This, it says, has included exemption from a number of fees, state purchase of air routes, additional compensation for existing routes, support for non-state airports and a guarantee scheme of up to NOK 6 billion ($656 million).
The government noted that, as well as Norwegian, Erik G Braathen had requested support for his startup Norwegian airline. It doesn't appear he secured funding either.
What next for Norwegian?
The Norwegian airline succeeded in creating a niche for itself, offering low-cost travel across the North Atlantic. Its leisure focused 'value-first' services made it a firm favorite with many fliers; just last week, it was voted Europe's Leading Low-Cost Airline 2020 for the sixth consecutive year at the 27th annual World Travel Awards.
However, what made it different was to prove to be its downfall, as borders closed, and the lucrative transatlantic market fell off a cliff. The airline hasn't flown to the US in months and was recently reported to be delaying the restart of transatlantic flights until at least March 2021.
Without a cash injection in one form or another, Norwegian is left in a precarious position. The support of the national government was expected at the airline and was desperately needed too. In his impassioned statement, Schram added,
"We are called Norwegian. We are Norwegian. We are a part of Norway and Norway is a part of us."
He says that he believes Norwegian contributes some NOK 18 billion (almost $2 billion) to the Norwegian economy, supporting 24,000 jobs and bringing tourists to the country. He believes that this alone clearly demonstrates that financial support would be a profitable investment for Oslo.
"How anyone could come to a different conclusion is impossible to understand," he said.
It seems that Norwegian will need to look elsewhere for its capital raising efforts. Whether any other avenues are left open to it remains to be seen. What is clear is that survival through to the other side of winter very much hangs in the balance.
