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Who would start an airline in the middle of a pandemic?

Author: ICAEW Insights

Published: 26 Oct 2021

The team behind Norse Atlantic Airways is the answer. Bjørn Tore Larsen is the founder and CEO of this low-cost, long-haul transatlantic airline based in Norway, and ICAEW member Ben Boiling is his VP Finance. We ask him: what is the plan?

Founded in February 2021 in Arendal, Norway, Norse Atlantic Airways plans to begin operations between Europe and North America during 2022, with a fleet of 15 Boeing 787 Dreamliner aircraft.

And the team behind the airline is launching with the type of foresight the airline industry has never had before. Yes, the industry has persevered despite terrorist attacks, volcanic ash clouds, massive economic slumps and huge shifts in business models, but a global airline industry was just an aspiration during the last global pandemic a century ago. By 2020 a global aviation sector had become fully formed and has been decimated by the disruption to the passenger side of the industry following the outbreak of COVID-19.

While existing low-cost and legacy airlines are still shuddering from the economic impact of the pandemic, Norse has appeared on the scene as a start-up that is unencumbered by assets it cannot fly, slots it cannot land, and a passenger base that cannot leave their homes. That is why the timing is absolutely right for this fledgling airline. 

Boiling is at pains to point out that it is his chartered accountancy skills that helped demonstrate the opportunity that lies ahead for this newly formed team. It is all in the numbers. Stranded aircraft assets available at distressed prices, routes that are reawakening for which capacity is not being offered, the availability of talent to build a team, and lessors willing to listen and negotiate breath-taking deals. 

Boiling himself was already working as CFO in Norway for another company that was founded by Larsen, not an airline but a shipping company listed on the Oslo Stock Exchange when the opportunity struck. Larsen – who made his fortune largely in shipping and other transportation-related businesses – approached him to become part of the Norse leadership team. The timing is not unrelated to an announcement in January this year of another low-cost carrier exiting the long-haul Europe/US market – this, in effect, leaves the gap in the market Norse seeks to fill. 

With an established player vacating this segment of the market and the legacy carriers watching their market disappear, it was a no brainer for Boiling to jump on board. “As soon as we saw the potential opportunity, we started running some numbers to see if this was a crazy idea or if the economics suggested it was something worth pursuing,” he says. “We put some numbers in a spreadsheet – which is something us accountants are used to doing – to see what we could make of the available historical data coupled with asset pricing we were being offered.”

The numbers told a compelling story. The founder used his own resources to put down lease deposits to secure the leases for the first nine aircraft; this gave the founding team a six-week window to finalise the business case, get investors on board, list the company on the Oslo Stock Exchange and raise over $170m in capital. Completing this raise allowed the company to execute the leases of nine Boeing 787 Dreamliners, while six further Dreamliners were added subsequently, all on long-term leases at historically low rates and favourable payment terms. The airline is entirely equity financed – there is no debt at all.

What Boiling brought to the table was his experience of bringing companies to the stock exchange and his understanding of what investors look for in terms of financial reporting. He is also accustomed to working in cyclical sectors like oil and gas, and shipping – experience that will be vital to the airline start-up. 

“This has been a once in a lifetime opportunity, largely driven by the travel restrictions as a result of COVID. There were a lot of aircraft parked around the world, not being utilised. So, we were able to get hold of 15 modern, efficient and more environmentally friendly aircraft at what we believe to be really attractive prices and we could compare the historical pricing with what was being offered for these Dreamliners,” he says. 

“It is critical for us to take time to build the organisation and to manage cashflow carefully because we are a start-up. This means building teams properly, getting all the right approvals in place, but also making the right investment decisions now that we will benefit from in the years to come. It is also imperative for us to see that COVID is behind us, and travel restrictions are lifted, before we start to fly.”

All 15 aircraft will be delivered between December 2021 and March 2022. While Norse expects to have its first aircraft in the air towards the end of Q1 or into Q2 2022, there is no pressure, from a liquidity point of view, to get all aircraft in the air immediately. Norse is well financed, and the aircraft leases are structured in such a way that for the first year after delivery no payments are made until Norse starts flying. 

The leases are on average well over 10 years. With asset values being so low, it made absolute sense to nail down those assets for as long as possible. But Norse plans to operate a small fleet on transatlantic only routes – it does not aspire to be all things to all people, so it is not getting ahead of itself.

It will have one Air Operator’s Certificate in the UK and another in Norway for the EU market – a symptom of Brexit. 

Ultimately, the business model is to deliver affordable air travel from Europe to the US and vice versa, but that means having a very affordable cost base. The backbone for managing that will be ensuring we have the right systems. “We've got a lean but very talented IT team based in the US that have worked with start-up airlines before,” says Boiling. “There is no excuse for not getting the IT side of things correct when you launch an airline in 2021.”

If there is one thing Boiling and others in his team – some of whom have also cut their teeth in shipping – have learned it is that when you work in a volatile sector, you have to enter markets at the right time. And that is most definitely what is happening here.

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