Scandinavian budget carrier Norwegian saw its share price nosedive when markets opened on 14 April, following its 8 April proposal to convert debt to equity in order to qualify for state aid.

Shortly after the Oslo stock exchange reopened following the long Easter weekend, Norwegian’s share price was at one point down more than 60% compared with when the market closed on 8 April.

Norwegian Boeing 787

Source: Norwegian

This was the first indication of investor appetite for the airline since it announced plans for bondholders, lessors and other creditors to become equity holders in the company by converting “substantial” debt to equity. The carrier’s chief executive, Jacob Schram, said the proposed measures were necessary to secure “the next tranches of the Norwegian government state guarantee programme”.

Norway last month announced a NKr6 billion ($583 million) bailout for the aviation sector, half of which is earmarked for Norwegian.

In a 14 April research note, Bernstein analyst Daniel Roeska describes Norwegian as being “at the end of the line”. He expects shareholders to sign over the majority of equity to bondholders during the airline’s 4 May general meeting, pointing out that “existing shares are all but worthless”.

Roeska believes there are two likely outcomes for the airline: “Either the bondholders agree a conversion price for their debt into equity, or they do not. If they agree, the firm continues to operate, but shareholders will be severely diluted. If they do not, then we expect operations to cease, bankruptcy proceedings to start, and shareholders to get nothing.”

If the first option comes to fruition, the airline will be able to access state aid and continue with its restructuring. However, it might take a much smaller form in the future and its long-haul operation could be axed, Roeska suggests.

“Oslo has an interest in keeping this alive, facilitating connectivity for its corporate sector and intra-Scandinavian travel,” he writes. “If it continues, will the airline admit that the long-haul, low-cost experiment has failed and retreat back to its Nordic core? The new shareholders will decide.”