Norwegian Air aims to secure NOK3 billion (£240 million) in state aid in Norway by converting a portion of its debt to equity to meet the requirements for a loan guarantee.

However, a senior investment analyst described it as “a last throw of the dice” by Norwegian Air, which went into the Covid-19 crisis already in financial trouble.

The carrier has set a deadline of May 4, when it plans an extraordinary general meeting, to secure agreement to a debt-for-equity swap by aircraft leasing companies, bondholders and suppliers and acceptance by existing shareholders of a dilution of their stakes.

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Norwegian has already secured NOK300 million (£24 million) from the government in Oslo but must fulfil the conditions attached to access the full NOK3 billion on offer in two additional tranches.

The carrier, which slashed capacity by 85% in March, gave notice in a statement yesterday that it proposes to convert debt to equity by “key stakeholders including aircraft lessors, bond holders, convertible bond holders and suppliers”.

It will do so by “converting parts of Norwegian group’s liabilities to lessors, banks and other creditors into shares, use of other financial instruments to convert any relevant debt to equity [and] converting all or part of its bonds into shares”.

These measures “will release liquidity under the government guarantee programme [and] ensure the company can sustain the current Covid-19 environment and prepare to gradually re-open its network”.

The only offer to existing shareholders is of “potential preferential treatment” in “a subsequent private placement”.

Norwegian chief executive Jacob Schram said: “The proposed measures are necessary in securing the next tranches of the Norwegian government state guarantee that will release NOK3 billion. They are also necessary for strengthening the company’s balance sheet.

“We will over the next weeks engage with bond holders, lessors and other creditors with the intent of converting substantial debt to equity.

“This will create a platform which will enable Norwegian to return as a stronger company.”

However, a travel industry investment analyst described the equity as “to all intents and purposes a worthless piece of paper” and said: “It is a last throw of the dice to offer what you can to pay down debt.”

A first tranche of aid, NOK1.2 billion (£94 million), will be available if “accompanied by private sector Involvement and existing creditors agree to a moratorium on interest payments and deferral of principal payments for three months”.

The remaining NOK1.5 billion (£118 million) or, if the first tranche is not drawn, the entire NOK2.7 billion will be available if “accompanied by private sector Involvement and during the moratorium” [on payments] the balance sheet improves “such that the equity ratio [to debt] . . . is at least 8%”.

Norwegian Air started the year with a debt of more than NOK58 billion (£4.8 billion) which ballooned by NOK32 billion last year despite the carrier reporting an “underlying operating result” of NOK 6.5 billion (£540 million) in full-year results.

Its net losses were NOK1.6 billion (£133 million) in 2019.

The carrier was forced to acknowledge in February that credit-card acquirers continued to withhold payments, a month before imposition of widespread travel restrictions.

Norwegian reported then that it was “continuing financing activities directed towards releasing liquidity from credit card acquirers”.

Announcing the availability of state aid at the end of last month, Norway’s industry minister Iselin Nyboe said: “Norwegian had financial challenges before the coronavirus crisis.

“We make it clear that both owners and lenders must contribute to improving the company’s financial situation if the state is to provide guarantees.”