Will Norwegian Airlines Collapse Before the End of the Year?

Norwegian Air is reportedly implementing serious cost-cutting measures in an effort to avoid a complete financial meltdown. Norwegian is just the latest long-haul budget carrier to face serious money woes. The struggling airline hopes that the announced austerity measures will help it to avoid the fate of competitors Primera Air and WOW Air.

It wasn’t long ago that Norwegian Air appeared to be positioned to become a real threat to legacy carriers in the United States and historically dominant European carriers. The airline even managed to regularly carry more transatlantic passenger between New York and Europe than British Airways. Now, the Fornebu, Norway-based budget airline is reportedly fighting for its very survival.

In the short time period since earning the rights to operate transatlantic flights between North America and Europe, Norwegian has embarked an aggressive expansion plan at near breakneck speed. As recently as November, the airline announced plans to add Miami International Airport (MIA) and San Francisco International Airport (SFO) to its route map.

“We are continuously reinforcing Norwegian’s commitment to the U.S. as this is one of our most important markets,” Norwegian Air Shuttle Founder and CEO Bjørn Kjos said in a statement announcing the airlines latest growth spurt. “Transatlantic low fares resonate very well with both American leisure and business travelers, especially when matched with our award-winning inflight experience. Our new routes and increased frequencies will make us even more competitive, while offering Americans more options and more ways to save and enjoy travel.”

Bot analysts say underneath the ambitious expansion plans and rosy market projections, Norwegian is showing signs that it is struggling to stay afloat. According to a recent report from Forbes, creditors have indicated that the carrier is in danger of defaulting on some debts before the close of 2018.

Norwegian newspaper Dagens Næringsliv reported earlier this month that Norwegian Air’s parent company is facing “full crisis” if it doesn’t satisfy its lenders.

Airline officials called the dire predictions “pure speculation,” but the company announced a series of cost-cutting and restructuring measures to avoid the potential of insolvency.

“As previously announced, our liquidity is satisfactory,” the airline said in a defiant statement this week. “We attract hundreds of thousands of new passengers every month and we are currently working on selling parts of our fleet, which will further strengthen our financial situation.”

Analyst Martin Stenshall at Danske Bank also thinks Norwegian Air will violate the terms of its loans by the end of the year if it does not sell a significant number of its new aircraft. He also noted that this action could spur suppliers to demand cash to pay for fuel of aircraft landing fees. “If the company has to report a violation of the conditions surrounding its debt, it can land in an evil spiral and the crisis will escalate,” Stenshall told Dagens Næringsliv.

In addition to selling a portion of its fleet, the carrier says it will attempt to restructure loans, escape from agreements to purchase some new aircraft and consolidate its route map to eliminate under-performing routes. The company said it will also implement plans to trim more than $230 million in operational costs in the coming months. Airline officials partially blamed persistent mechanical issues for contributing to the budget carrier’s current financial difficulties.

When long-haul carrier Primera abruptly ceased operations in October of this year, the airline blamed the delayed delivery of promised new Airbus planes for an unexpected inability to keep the lights on. Meanwhile, the future of Reykjavík-Keflavík International Airport (KEF)-based long-haul budget carrier WOW Air is very much in doubt after Iceland Air backed out of plans to take over the struggling competitor.

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