Airline will apply to Covid-19 furlough scheme but does not have money in the interim

This article is more than 5 months old

This article is more than 5 months old

Pilots and cabin crew employed in the UK by the struggling airline Norwegian Air Shuttle have been told they will not receive their April salary because the airline does not have the money to pay them.

The airline asked its 1,000 UK air crew to accept significant pay cuts or redundancy at the end of March but workers have been informed that the airline has “no readily available funds to pay any employees on this coming payday” on 25 April.

The company intends to apply for the UK government’s furlough scheme to cover 80% of staff wages up to £2,500 when it opens on 20 April but does not have the funds to pay workers in the interim.

Quick guide UK government support for workers and businesses during the coronavirus crisis Show Hide Income subsidies Direct cash grants for self-employed people, worth 80% of average profits, up to £2,500 a month. There are similar wage subsidies for employees. Loan guarantees for business Government to back £330bn of loans to support businesses through a Bank of England scheme for big firms. There are loans of up to £5m with no interest for six months for smaller companies. Business rates Taxes levied on commercial premises will be abolished this year for all retailers, leisure outlets and hospitality sector firms. Cash grants Britain’s smallest 700,000 businesses eligible for cash grants of £10,000. Small retailers, leisure and hospitality firms can get bigger grants of £25,000. Benefits Government to increase value of universal credit and tax credits by £1,000 a year, as well as widening eligibility for these benefits. Sick pay Statutory sick pay to be made available from day one, rather than day four, of absence from work, although ministers have been criticised for not increasing the level of sick pay above £94.25 a week. Small firms can claim for state refunds on sick pay bills. Other Local authorities to get a £500m hardship fund to provide people with council tax payment relief. Mortgage and rental holidays available for up to three months.

Workers have been sent a letter about the delayed payment, seen by the Guardian, which states that the airline is still waiting to receive rescue financing from the Norwegian state. “Norwegian has not been able to secure the Norwegian government support package as of yet and hence has had to take drastic measures to survive up until May,” the letter said.

In order to unlock state aid from the Norwegian government, the low-cost carrier needs its creditors to approve its rescue plan, which proposes converting 44.5bn kroner (£3.3bn) of debt into equity while issuing new shares, almost wiping out the value of the company’s current shareholder base.

The memo was sent to workers by OSM Aviation UK HR, a crew management company that directly employs Norwegian’s UK crew and is half-owned by Norwegian.

Pilots and cabin crew are warned “an optimistic pay date would be 1 May”, if the UK government furlough funds arrive, but they could receive their April salary as late as mid-May.

The airline said: ‘‘The crew employer, OSM, has been in constant dialogue with the relevant unions to reach the best possible agreement for our crew colleagues based in the UK.”

Norwegian is the third largest low-cost carrier in Europe behind easyJet and Ryanair but in mid-March it grounded most of its fleet until mid-June and temporarily laid off 90% of its staff.

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The loss-making airline was trying to overhaul its finances with an emergency cash call even before the spread of the coronavirus resulted in international air travel grinding to a halt.

The company needs to reduce its ratio of debt to equity in order to access the next tranches of support from the Norwegian government. It has offered loan guarantees of up to 3bn krone (£240m) to airlines including Norwegian, with strict conditions attached, and the airline has currently only qualified for around a tenth of the aid.

Existing shares are “all but worthless” according to analysts at City broker Bernstein, adding that the airline needs at least 2.7bn kroner (£175m) of equity.

“Norwegian is at the end of the line. Yet there is hope for the airline and, pending creditor agreement, it may continue to fly,” said the Bernstein analyst Daniel Röska, who added that Norwegian might survive as a carrier focused on the Scandinavian market.