The spring of 2020 has been fraught for cruise lines, which were forced to suspend service indefinitely due to the spread of the COVID-19 pandemic. But Norwegian Cruise Line, in particular, has had a slew of challenges since March, including not only the canceled voyages (also faced by its competitors), but also financial woes and a pause on expensive shipbuilding projects.
"We believe the ongoing effects of COVID-19 on our operations and global bookings have had and will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such an outbreak," reads Norwegian's securities filing.
Norwegian Cruise Lines, like the rest of the Cruise Lines International Association – a trade group consisting of the majority of the world's cruise ship operators – called its ships back to port and cancelled future cruises for at least 30 days, starting March 14. That order was later extended to the end of June.
Norwegian's decision was followed just days later by a blanket No Sail Order issued by the US Centers for Disease Control and Prevention for all cruise lines operating in the US through at least July 24. Numerous other ports around the world have also put regulations on cruise ships in place to stem the spread of the novel coronavirus.
"This is the first time that we have completely suspended cruise voyages, and as a result of these unprecedented circumstances, we are not able to predict the full impact of such a suspension on our company," says Norwegian in its Update on Liquidity and Management's Plan.
Not only is Norwegian at anchor for the first time in the company's 54-year history, it's in the middle of building nine new ships. Before the pandemic, those expensive projects were seven years out from completion, though the timeline could be extended further depending on when shipbuilders themselves are able to get back to work. Now those orders are in limbo, just when it's unclear what the long term effects of COVID-19 will be on travelers' demand for cruises.
"We cannot predict when any of our ships will begin to sail again or when ports will reopen to our ships. Moreover, even once travel advisories and restrictions are lifted, demand for cruises may remain weak for a significant length of time and we cannot predict if and when each brand will return to pre-outbreak demand or pricing," notes Norwegian in its filing. All of this adds up to a great deal of financial uncertainty for the world's third-largest cruise line.
Norwegian will be attempting to stem the tide by issuing stocks and bonds, as well as drawing down on revolving credit. It has also made a deal with private equity firm L Catterton, accepting an investment of $400 million. If those measures aren't enough to balance the books, Norwegian may be forced to seek waivers from lenders, default on its loans, or even file for bankruptcy protection. To add to Norwegian's woes, the company noted in its securities filing that the Florida Attorney General is investigating "the company’s marketing during the COVID-19 outbreak" and whether "the company made false and misleading statements to the market and customers about COVID-19."
Norwegian Cruise Line isn't alone in such investigations, however. The US House Committee on Transportation and Infrastructure began investigating competitor Carnival Cruise Line on May 1 regarding over 1500 confirmed cases of COVID-19 which were traced back to Carnival cruise ships this spring. Carnival is also in a more financially robust position and is already planning to resume service out of select US ports as soon as August 1.