Norwegian Air (NWC.OL) shareholders backed its financial survival plan on Monday, with more than 95% of votes cast supporting the conversion of nearly $1 billion of debt into equity and raising more cash from its owners.
The approval follows weeks of negotiations with creditors, while thousands of Norwegian’s pilots and cabin crew were being laid off. The rescue deal prepares the ground for a relaunch of the company in a scaled-down version when the coronavirus crisis subsides.
Bondholders, who on Thursday narrowly rejected the plan, were back on board on Sunday following additional negotiations. Norwegian now expects a final May 18 vote of creditors to be “almost 100% a formality”, the company said.
“This has been perhaps the most exciting financial thriller Norway has ever seen,” Chief Executive Jacob Schram told a news conference after Monday’s shareholder meeting.
The budget carrier’s shares rallied 46% on news of the plan’s approval, even though owners face significant dilution of their stakes as lenders gain control of the firm.
The rescue deal is a vital part of the airline’s plan to tap government credit guarantees as it seeks to overcome the crisis, which has compounded its already deep financial problems.
Airlines around the world have been hit hard by the pandemic’s impact on travel, with many forced to turn to governments for state aid to avoid bankruptcy.
Norwegian Air, which had amassed debts of around $8 billion at end-2019, said ahead of the meeting that it had won “strong support” from aircraft lessors for its plan.
With 95% of its fleet grounded due to the pandemic, Norwegian Air has said it could run out of cash by mid-May unless shareholders supported the plan.
Norwegian Air said lessors are now willing to convert at least $730 million of debt into equity, up from $550 million earlier, and talks are ongoing for possible further conversion.
“With the significant contributions from lessors and bondholders, the company expects to convert more than 10 billion crowns ($958 million) in debt to equity,” the company said.
Talks in the past few weeks involved 24 lessors and four separate groups of bondholders as well as banks and shareholders. At the same time, the company was having to ground its fleet as well as try to serve customers stranded by the crisis.
“It was like a war zone,” Schram said.
The company will now proceed with the conversion of bonds and lease debt into shares, and a public offering of up to 400 million ($38.4 million) from the sale of new stock. The terms of the share sale will be decided later on Monday, Norwegian said.
The debt conversion and share sale will allow Norwegian Air to tap government guarantees of up to 2.7 billion crowns, which hinge on a reduction in leverage, on top of 300 million crowns it has already received.
The plan will hand majority ownership to the airline’s creditors and could leave current shareholders with just 5.2%.
The loan could keep Norwegian Air going until the end of 2020, although further cash may be needed as it looks towards a gradual ramp-up next year and normalisation in 2022, albeit with a reduced fleet.
Norwegian Air is only paying invoices vital to maintaining minimum operations, such as salaries for staff still employed and critical IT infrastructure. It has put payments for ground handling, debt and leases on hold.