Norwegian Air has warned that virtually all of its fleet of aircraft will remain grounded until 2021 as it seeks to persuade shareholders to accept a government-backed rescue plan that will wipe out most of their investments.

At the beginning of a critical fortnight for the airline, Norwegian laid out the scale of the task ahead – and the hit it expects bondholders, aircraft lessors and shareholders to take in order for the airline to access a 3bn kroner (£230m) state bailout.

Even that may not be enough, it warned, in its “base scenario”, where operations only restart in earnest next summer. Currently just seven of a fleet of 147 planes are not grounded as they are being used for state-subsidised domestic flights in Norway, mainly for essential cargo.

The airline is planning for a “New Norwegian” to emerge, focusing on key profitable routes, jettisoning long-haul routes to secondary airports, and using a fleet up to 30% smaller than previously planned.

Bondholders will later this week decide whether to accept the strategy and allow the debt to be converted into equity, a necessary move if Norwegian is to gain access to state funds.

Norwegian’s aircraft lessors will also be asked to take equity in the company, rather than pursue debts. The airline is looking to reduce its obligations on leasing planes by $500m (£403m).

Shareholders will vote on the proposal at an emergency general meeting on 4 May. If the plan is approved, new shares will be issued on 11 May, which will reduce the value of current shares by another 95%.

The carrier grounded its fleet in mid-March due to coronavirus travel restrictions, and has temporarily laid off more than 80% of its workforce. Before the outbreak, Norwegian claimed to be on track to restore its balance sheets to sound health after years of rapid but financially precarious expansion. It had pioneered low-cost long-haul flights, and grown significant bases abroad, becoming one of the biggest airlines at London Gatwick, as well as establishing a big presence in cities such as Rome and Paris.

Although it says the current restructuring and state aid will be a buffer only for the next six to nine months, the airline’s prospects of survival – albeit heavily pruned - may be stronger now than in recent years, when rivals regularly predicted its demise.

Political support has grown for the oil-rich Norwegian state to preserve the flag-carrier, in some form. An emergency amendment to bankruptcy laws could be passed to mirror the Chapter 11 rules in the US, which have allowed airlines to continue operating during insolvency.

John Strickland, an industry analyst from JLS Consulting, said: “Everything hinges on the emergency meeting next week. Logically, the Norwegian government’s interest is only going to be in services in and out of Norway – which are likely to be short-haul only. It’s reasonable to imagine, even with that funding being granted, that we would see a significant reduction in the scale of Norwegian’s operations going forward.”

Meanwhile, the resumption of UK leisure flights is likely to remain some way off, despite the announcement by the low-cost carrier Wizz that it would restart flying from Luton Airport as early as 1 May – mainly offering services to Romania, which has indicated it will ease restrictions from 15 May, and Bulgaria. Both countries are home to large numbers of seasonal agricultural workers in Britain. The airline does not expect to have to enforce social distancing due to the small number of passengers likely to fly for “essential travel”.

A Luton Airport spokesperson said the airport was open and the decision to operate flights was a matter for airlines, adding: “Any passengers using these services will need to adhere to all restrictions imposed both in the UK and in the country of travel.”

Airlines seeking help

Virgin Atlantic Sir Richard Branson’s Virgin Group says it is not looking to sell the airline, after appointing bankers Houlihan Lokey to look for new investors. Branson however could potentially sell down his majority 51% stake. The US carrier Delta, which owns 49%, has said it will not put further funds into Virgin Atlantic as it seeks to preserve its own core operation. Virgin Atlantic says it remains in “constructive talks” with the UK government, which has batted away its initial requests for help worth £500m in loans and credit guarantees.

EasyJet As a listed firm with aircraft assets, EasyJet was able to tap the government and Bank of England for a £600m loan under its Covid Corporate Financing Facility. It says it can now survive another nine months at the present rate of cash burn.

Lufthansa Shares rose in the German airline on Monday after ministers insisted that they would not let the flag-carrier be a casualty of the pandemic. Talks continue towards a multibillion state bailout. The group’s Austrian Airlines subsidiary has already been pledged €870m (£759m) by Austria’s government.

Air France-KLM About €10bn in total will be provided by the French and Dutch governments to bail out the twin national carriers, in the form of credit guarantees and loans. The Netherlands has demanded executive pay cuts and the suspension of dividends and bonuses.

US carriers Two pots of $25bn have been earmarked for airlines from the US’s $2.2tn stimulus package. The first will provide grants and cheap loans according to each airline’s payroll, and be given on condition of keeping staff employed. Airlines can apply for additional loans from the second pot. The biggest carriers, such as United, American Airlines and Delta, are expected to receive up to $5bn each from the first tranche.