Norwegian Air was one of the few airline stocks this week to have weathered the Saudi Aramco oil crisis without the slightest turbulence. It can thank its bondholders for that.
In a statement issued on Tuesday, the company announced that bondholders agreed to a two-year extension to pay back two unsecured bonds valued at $380 million. The backing was reached in a series of meetings with creditors on Monday. The airline needed a two-thirds majority of bondholders to agree to the more lenient payment terms on the separate bond tranches, the company’s two biggest. In the end, it secured 89.8% and 99.64% approval, respectively.
To get buy-in, the airline offered as collateral its take-off and landing slots at London Gatwick Airport, which it estimates is at least as valuable—$380 million—as the two outstanding bonds.
Shares of the low-cost carrier, Europe’s third largest, are up more than 16 percent over the past three trading days. Investors sent the stock soaring even as the rest of the aviation sector bottomed out as the price of crude oil took off in response to the attacks on Saudi Aramco’s oil processing facility over the weekend.
“We’re pleased with the bondholders’ decision to amend the bonds as it will give us added financial headroom going forward,” said acting CEO and CFO, Geir Karlsen. “We believe it demonstrates faith in our strategy and support of the important measures Norwegian is undertaking to return to profitability. The company’s operational performance continues to improve, and we are on track to reach the targeted cost-reductions of two billion NOK in 2019.”
Karlsen took over the helm this summer after founder and former CEO Bjoern Kjos stepped down. Investors had grown impatient with Kjos as the once high-flying company saw passenger numbers fall in the wake of the grounding in March of the Boeing 737 MAX, its workhorse passenger plane model.
Norwegian responded by shutting down its fleet of 18 737 MAX planes, representing a vital piece of its growing route business. In a move that took effect this week, it was forced to suspend flights between three airports in Ireland and three North American destinations: New York Stewart, Providence, RI, and Hamilton, Ontario.
The Boeing 737 MAX saga has disrupted much of the airline sector. Ryanair, Europe’s No. 2 airline, warned investors this summer that the uncertainty about the availability of the 737 MAX would cut into its growth projections and that it would be forced to scale back operations at unspecified airports and abandon whole markets.
In recent years, the aviation industry has become increasingly dependent on narrow-body, long-range planes to handle growing air passenger numbers, making the grounding of the Boeing 737 MAX a huge loss for the sector.
More must-read stories from Coins2Day:
—Saudi Aramco is getting what it’s long wanted—perhaps at the expense of its IPO
—Passive investing has exploded. But here’s why fears of a bubble are overblown
—Why the next recession may feel very different than 2008
—Social Security increases in 2020 will be noticeably smaller than this year
—U.S. Recession indicators haven’t made up their minds
Don’t miss the daily Term Sheet, Coins2Day’s newsletter on deals and dealmakers.