Norwegian Air says it could be out of cash in early 2021

Beleaguered Norwegian Air (NAS.OL) has announced that it could be out of cash in the first quarter of 2021 if the coronavirus pandemic continues to ravage the airline industry.

By the end of September 2020, cash equivalents for the airline were NOK3.4bn (approx. $376m, £285m), a decrease of nearly NOK1.6bn from June 2020, according to the company’s Q3 2020 earnings report.

The airline’s probability to continue operations in Q1 2021 is dependent on additional capital.

“Our third-quarter results clearly show that the effects of the global COVID-19 pandemic continue to heavily impact our operations and financial position,” said Jacob Schram, Norwegian Air chief executive. “Norwegian is dependent on additional working capital to continue operating through the first quarter of 2021 and beyond.”

Norwegian Air appealed to the Norway government for more state support in November 2020. The plea was rejected because it was too much of a risk to take. The airline had lost nearly 99% of the value of its shares since January 2020.

The airline said funding could come from refinancing, sale of assets and aircraft, and conversion of debt to equity. However, this is under probability as aircraft leasing companies own more than half of the airline’s fleets after exchanging earlier debts for equity, said a source familiar with the matter.

“Norwegian was a credit red light for lessors even before Covid,” the source said. Adding that, lessors joined initially because liquidation wasn’t enough and to prevent the aircraft from being sold into a strained market.

The airline’s operating loss was NOK2.8 billion in three months from July to September, a decrease from NOK3 billion from the same period a year ago. By the end of the third quarter, the airline had overall debt and liabilities of NOK66.8 billion due to its swift expansion. This made it more vulnerable to the impact of Covid-19.

The airline said it would furlough an additional 1,600 staff, down from a pre-pandemic 10,000, leaving only 600 people working. It also said it will only fly 12 domestic routes.

“The capacity was 93% lower than last year with a load factor of 55.3%. On average Norwegian operated 21 aircraft in October, mainly on domestic routes in Norway,” the company said.

Norwegian Air is known for creating low-cost routes over the Atlantic. Its swift expansion before the Covid-19 pandemic has left the company swimming in debt. By mid-2020, the company had nearly $8 billion worth of debt.