For an airline that isn’t officially up for sale, Norwegian is attracting admirers at a pace. Following several offers from International Airlines Group (IAG), Lufthansa has now made its interest known. Speaking to German newspaper, Sueddeutsche Zeitung, chief executive, Carsten Spohr, announced that the group would be interested in making a bid for Norwegian.
Spohr told the newspaper that another "wave of consolidation” was occurring in Europe, and that Lufthansa is also “in contact with Norwegian", although he added that whether or not an acquisition takes place was "a question of strategic added value, of the price and of the competitive possibilities”.
Shares in Norwegian Air have jumped by almost 10% on the news.
In a podcast to investors, Norwegian’s CFO Geir Karlsen, described IAG’s surprised acquisition of a 4.6% stake in the airline as a surprise but a good one since it demonstrates how attractive Norwegian is to competitors. The move by Lufthansa strengthens that sentiment somewhat. In the same podcast, Karlsen also reiterated the focus of the airline to move from a growth status to profitability. He described growth having plateaued and now the airline is focused on consolidating its route network, adding frequencies on profitable and in-demand routes and curtailing others, with a specific focus on improving the airline’s on-time performance, especially on long-haul routes where compensations costs can be significant.
Karlsen also touched on the plan for the airline to divest up to 140 aircraft from its portfolio and orderbook – some of which will be straight sales with others being placed in a leasing entity to service third-party customers. This will lower the company’s leverage ratio, remove obligations and lower capital expenditure, which will assist with the company’s move to profitability in the latter half of this year.
He also discussed the impact of IFRS 16, which comes into force next year, that will inflate both sides of the balance sheet and render the argument for off balance sheet operating leases redundant. Norwegian does not and will not use operating leases for its aircraft, and would only consider a finance lease in the future, says Karlsen. He added that the airline was very satisfied with the AFIC product for financing its aircraft, which he views as particularly attractive – secure and with a low cost of capital – and will be using this form of finance going forward.
Norwegian is in the midst of its second equity capital offering – the first for almost a decade was launched in March and the ongoing offering subscription period should close next week.