Court approves repudiation of Norwegian Air leasing contracts

Airline said move was necessary to ensure its survival

The High Court has approved the repudiation of certain contracts which Norwegian Air International and four other Irish-based subsidiaries of its parent company had entered into for the leasing of aircraft, a move they claim is necessary to ensure the survival of their business.

The ruling will allow the group to repudiate a total of 425 contracts with 68 counterparties.

While the majority of counterparties with contracts with the Norwegian Air group of companies either consented or did not challenge the High Court application, it was opposed by three parties – Credit Agricole Corporate and Investment Bank, the Bank of Utah, Citibank and PK Air Finance.

Legal representatives of the three counterparties had argued the focus of the court should be to ensure the intended repudiations were made in good faith and genuinely aimed at achieving a satisfactory, optimal restructuring of the Norwegian Air group.


They claimed the relevant companies had not provided sufficient evidence as to why the repudiation of the contracts was necessary and the court should not merely “rubber stamp” the group’s restructuring plan.

The objectors argued that the Norwegian Air group had timed the application as part of a strategy to apply pressure on counterparties to negotiate more favourable terms in he future.

The High Court heard the Norwegian Air group had accumulated around $5.19 billion (€4.32 billion) in debt and leasing obligations from its fleet of 140 aircraft.

In March, the High Court approved a restructuring scheme for Norwegian Air and the other Irish-based subsidiaries which had been devised by court-appointed examiners.

A business plan announced by the Norwegian Air group in January had confirmed it would focus in future on its core business in the Nordic countries and also cease to operate long-haul routes.

The group said it would also reduce its operations to around 50 aircraft.

Precarious situation

The restructuring was necessary due to the group's precarious financial situation as a result of the global grounding of Boeing 737 Max aircraft and the impact of Covid-19 pandemic on air travel.

The restructuring also provided that new investors would own approximately 70 per cent of shares in the group, while impaired creditors would own approximately 25 per cent with the remainder by existing shareholders.

Norwegian Air and the other companies had made the application under Section 537 of the Companies Act 2014 which allows for the repudiation of contracts to ensure the survival of a business.

The contracts related to two main categories – its long-haul operations and contracts which were no longer required because of its scaled-back business plan.

Many counterparties were either aircraft leasing firms or financiers but also included companies that provided the supply of in-flight entertainment systems, ground handling services, supply of spare parts, catering services contracts, cleaning related contracts and other airport facility arrangements.

Among companies with contracts with the Norwegian Air group of companies are Boeing, Airbus and Lufthansa.

Kieran Wallace of KPMG, who was appointed examiner of the Irish subsidiaries, said granting the application would "significantly enhance the prospect of the companies attracting the substantial investment that will be necessary to fund a scheme of arrangement to ensure the future survival of the companies and to finance the companies' future working capital requirements."

Generic in nature

In his ruling, Mr Justice Michael Quinn acknowledged there was "some force" to the objectors' submission that information placed before the court was generic in nature and lacked evidence-based analysis on individual contracts.

However, the judge said time limits under the legislation meant the application had to be made before all negotiations had been exhausted.

Mr Justice Quinn said the testimony of Mr Wallace had established the necessity for the repudiation of the contracts.

The judge said a separate hearing planned to determine the quantum of the loss or damages suffered by the counterparties was no longer required as agreement on the issue had been reached.