The airline Norwegian is trying to ride out the crisis by putting subsidiaries into bankruptcy. The company's narrow fortune may be its debts of almost SEK 60 billion.
The airline industry has gone through many crises over the decades, but none has been greater than today's. To reduce costs when revenues have completely disappeared, Norwegian Air Shuttle took the drastic decision to bankrupt the Danish and Swedish companies where the pilots are employed and thus avoid paying severance pay to currently unemployed pilots and cabin crew.
The bankruptcy decision does not include the companies that own the aircraft or the valuable take-off and landing permits. This is worth remembering because it is only when Norwegian gets rid of the landing permits and the self-owned and leased aircraft that SAS gets rid of its absolute worst competitor in the Nordic home market.
SAS shares rose on the news of Norwegian's bankruptcy proceedings. It was likely a hasty rise, as Norwegian is in no worse shape today than it was yesterday.
It may even be that Norwegian is the one losing the least from today's total aviation crisis. The Norwegian airline was already one of the financially weakest players in the industry before the aviation crisis, with an equity ratio of 3 percent and a financial net debt of 34 billion Norwegian kroner and a further 24 billion Norwegian kroner in leasing debt relating to the leased aircraft.
This ballast meant that even before the outbreak of Covid-19, Norwegian was on the defensive and in the process of reducing the number of routes to reduce its debt burden.
Now this crisis is so extensive for the aviation industry that society cannot demand that a single airline manage without major government support because it is not reasonable to have financial preparedness to handle a total flight shutdown around the world for several months.
It is often said that if you owe the bank a million, you have a problem. If you owe a billion kronor, it is the bank that has the problem.
Given that all airlines are now in need of government support, it may actually be the case that Norwegian will be saved even though the company has expanded far too much in the years before the corona crisis.
But it is of course very uncertain and anyone who believes it and buys Norwegian shares is thinking wrong. It could be that the company is saved, but that the rescue does not include the shareholders.
Norwegian founder Björn Kjos has had a really tough couple of years. He probably regrets today that he resisted British Airways' bid to buy Norwegian in April 2018 when the share price was 35 times higher than today's price.
Source: di.se
