It hasn’t flown a single mile, hasn’t had a passenger on board, has no traffic rights, and no financial track record. Yet, there is much talk about Norway’s newest start-up long-haul low-cost airline Norse Atlantic Airways AS since it has been established on February 1. If only that was for the bravery of launching a new long-haul airline in the midst of a pandemic at a time when the outlook for this segment is far from rosy. We have a look at Norse’s plans and ambitions. First some context: Norse Atlantic is jumping into the void that’s left by Norwegian. On January 14, Norwegian announced that its restructuring plan will concentrate on a domestic and European network and ditches the low-cost long-haul network which won its reputation in the past eight years. Within two weeks, founder Bjorn Tore Larsen responded by setting up a modest management team to create Norse Atlantic on February 1. Larsen is no stranger to aviation, have co-founded OSM Group which includes OSM Aviation and OSM Maritime. He continues to have a controlling share in the company and act as CEO, which he has done so until 2013 and again from March 2019. In a joint venture with Norwegian (in which it holds a 3.6 percent share), OSM Aviation has been responsible for sourcing, training, and managing cockpit and cabin crew. In 2019, Norwegian canceled crew provision agreements with a number of jointly owned subsidiaries. At Norse, OSM will provide crew management and services related to airworthiness and technical management of the operational control center, ground services, flight safety management, and IT. Founder and CEO Bjorn Tore Larsen. (Norse Atlantic Airways) From OSM, Larsen is joined at Norse by Espen Hoiby as Chief Operating Officer, while James Lightbourn has been sourced as investment director from Shiphold, which is a Cyprus-based holding company directly connected to B T Larsen & Co and shareholder in OSM, property company Seaview, and ADS Shipping. Norse also attracted key financial backing from Bjorn Kjos, the founder of Norwegian who stepped back as CEO in 2019 to concentrate on a more strategic role. As a Board member, Kjos holds a fifteen percent share in Norse with 1.5 million shares. Bjorn Tore Larsen is the main shareholder with 53 percent or 9.5 million shares through B T Larsen & Co and Björn Kise twelve percent. The airline has support from Pareto, Arctic, and Sparbank1 as financial advisors. The Chairman of the Board is Terje Bodin Larsen. Since February, Norse has step-by-step released more details of its plans, which targets the launch of its first transatlantic routes in December, successfully completing a private placement, finalizing a lease arrangement for nine Boeing 787s with AerCap, and getting a listing with the Euronext Growth Oslo from today, April 12. Norse has started with a $24 million capital in March. “We now have the once in a lifetime opportunity to build a brand-new airline from scratch”, Larsen said in a press release on March 15. “As the world re-opens, the public needs an innovative, low-cost intercontinental airline with modern, more environmentally friendly and fuel-efficient aircraft.” The network would include routes between Europe and the US, like New York, Los Angeles, Miami, Paris, London, and Oslo. All very familiar routes in the heydays of Norwegian. Successful private placement raised some $150 million A successful NOK 1.275 billion (some $150 million) private placement of 63.7 million shares at NOK 20 was announced on March 26. It was oversubscribed multiple times and attracted strong interest from Norwegian, Nordic, and high-quality institutional investors. B T Larsen & Co has been allocated $10 million in shares, and six cornerstone investors a combined $550 million. Proceeds of the offering will be used to finance the lease of up to twelve Dreamliners, $24 million for funding and start-up costs, $80 million is for gross working capital, $33 million for licenses and marketing costs and $9 million is needed for transaction costs. Including previously available capital, Norse has NOK 1.475 billion available. On April 9, the registered capital was NOK 221.3 million divided into 73.5 million shares. Norse Atlantic's fleet will comprise nine ex-Norwegian 787s sourced from AerCap. Norwegian-founder Bjorn Kjos is a board member and shareholder in Norse. (Norwegian) On March 29, Norse signed lease agreements with affiliates of AerCap for the lease of six Boeing 787-9s and three -8s. The first four should be delivered before the end of this year in order to start operations in December, the remaining five until March 2022. The carrier has accepted lease terms of on average eight years for the 787-8s and approximately twelve years for the -9s. Its plans cater to the lease of three additional aircraft until the end of 2022. The airline is entitled to register the aircraft in Norway, Sweden, Ireland, or the UK and they may be subleased to subsidiaries. Eight out of nine aircraft (all ex-Norwegian Long Haul and Norwegian UK Dreamliners) will join Norse with a fresh three-year check while the ninth aircraft will have had a first-year check. All Dreamliners will have Rolls-Royce Trent engines, for which Norse is in negotiations with the engine manufacturer for long-term, full-service agreements. In the first year, the 787s are leased under a pay-by-the-hour arrangement to reduce costs. Norse will incur fixed lease payment obligations from the second year of delivery of the aircraft and risks losing access to the 787s in the event of a payment default. Norse promises the lowest cost per seat kilometer In an Information Document released on April 9, Norse discloses more details of its operations. The 787-9s will have a 340-seat, 'Economy-focused' cabin configuration. No surprises here, as Norse inherits the Norwegian aircraft that had 338 seats (282 Economy, 56 Premium Economy). Ancillary services will all be extra for the leisure traveler, which will be specifically targeted using smart leverage data. Cargo is also a pillar of its business plan. The airline initially will focus on selected profitable transatlantic routes like London-New York, London-Los Angeles, Paris-New York, Paris-Miami, Oslo-New York, and Oslo-Miami. Before the pandemic, the leisure market on these routes accounted for 34 million passengers and 150.000 flights each way per year. It will scale up services upon demand and add more routes between Europe and North America later on, while also look at selected routes between Europe and Asia. “The Company intends to be a point-to-point carrier, relying on self-connecting facilitator services for customers and potentially partnering with feeder airlines. Norse Atlantic aims to be demand-driven, adjusting schedules to ensure the highest degree of utilization and using the winter season for scheduled maintenance”, the document says. All should be done at the lowest cost. Norse targets a cost per available seat kilometer of $2.7 cents. This is 48 percent lower than its closest long-haul competitor Virgin Atlantic, which according to the Norwegian start-up manages $5.2 cents per kilometer. Norse also claims to have the lowest pre-Covid five-year average load factor of seventy percent, compared to 75 for SAS, 79 for Virgin, and even 91 percent for Norwegian. There is even a scenario in which Norse further reduces its break-even load factor to sixty percent. At 340 seats, fuel burn per passenger should be 25 percent lower compared to a 787 with a 250 seat business-focused configuration used by some legacy carriers, it says. Virgin has 227 Economy and Premium Economy seats on its 787-9s (258 in total), Air France 246 (276), KLM 264 (294), and British Airways only 166 (234 in total). Call from Congress to ban Norse Instrumental to low costs are cheap contracts with staff, which will be sourced through OSM Aviation. Recruitment has already started and spurred some critical remarks within the US Congress, with Congressmen Peter DeFazio and Rick Larsen calling on Secretary of Transport Pete Buttigieg to deny Norse access to the US. They accuse the start-up of exploiting staff by sourcing them through third-party firms, just as Norwegian has done in the past. While Norse’s Larsen is denying that his airline will contravene any social contracts and under-pay staff, the airline’s information document suggests that the current situation within the airline industry gives start-ups like Norse leverage in negotiations: “The timing of the Company's entrance to the market at this historically weak period in the travel sector has allowed it to secure its initial fleet of nine aircraft and is expected to allow it to recruit talented airline professionals and negotiate with airports and other service providers from a place of strength relative to legacy competitors.” Norse targets a positive operational EBITDA from its first full year of operations. Pre-revenue cash burn is calculated at $1 million per month. Low costs should ensure a low break-even load factor, allowing for controlled expansion and further growth. To operate its first nine aircraft, the carrier has secured a deposit of $8.4 million with B T Larsen & Co. Permanent equity should be $150 million. AOCs not submitted yet While aircraft leasing contracts are in place and recruitment of staff is ongoing, Norse has to tick a few very important boxes before it can launch in December. It has yet to submit its Air Operator Certificates (AOC) with the UK’s CAA and Europe’s EASA as it needs to make sure first that its plans and staff meet the necessary requirements. It must also demonstrate that it can meet actual and potential obligations for two years from the start of operations and has the required funding in place to do so. Neither has Norse secured traffic rights to operate between the EU and US and between the UK and US but it intends to apply for the Open Skies agreements initially. Also to be confirmed are the slots at the various airports and transit rights, on which there is no guarantee that Norse will get them. The carrier needs to have sorted out this before the end of September at the latest to meet its planned December inaugural service deadline. And so the document contains more risks that are very realistic, given that Norse has no track record. Then there are risks outside its control, such as the situation of Covid-19 in the markets it wishes to enter and plans from competitors to fight for the same piece of the cake, like JetBlue. This makes Norse Atlantic’s plan ambitious and bold, especially as the outlook of the recovery of long-haul travel seems to shift to the right towards 2024. It remains to be seen if vaccinations will reach a sufficient level in December to curb the trend of travel restrictions and lockdowns now so familiar in many countries. Norse’s launch might come too soon. On the other hand, if transatlantic travel is seeing a sustained recovery from this Summer into the next Winter, Norse could find itself embattled with others for market share. Last month, GlobalData analyst Rheanna Morris said that Norse has to adapt its business model if it wants to survive. Without a high-yield Business Class product, this seems impossible. The analyst said Norse should learn from Norwegian's mistake of not having a Business product. If Norse Atlantic has done its maths correctly and can deliver on the lowest costs per seat as promised, the future could be positive. But the advantage could be negated if other airlines embark on a transatlantic price war to keep market share. The jury is still out on Norse.
