Norwegian's Crafty Pilot Finds a Whole New Way to Fly
(Bloomberg Gadfly) -- You have to hand it to Bjorn Kjos, chief executive of Norwegian Air Shuttle ASA. His bid to build a globe-spanning budget carrier looked like it was going to end in defeat earlier this month when International Consolidated Airlines Group SA said it had built a 5 percent stake and was considering buying the rest.
Is Kjos downcast? Not in the slightest. The ex-fighter pilot, who controls a quarter of Norwegian’s shares, told analysts on Thursday he was “happy” to have IAG as a fellow shareholder. He also revealed that Norwegian had received “several inquiries” from other parties, without saying what they had in mind.
To be sure, Kjos might just be putting a brave face on things. If IAG, or another airline, offers Norwegian’s shareholders a whacking great premium, Kjos would have a hard time persuading the board to reject it. He told Bloomberg television on Thursday that everything’s for sale “if the price is right.”
Absent a formal takeover bid, though, Kjos’s message about Norwegian being attractive to mutiple parties is a smart way of lifting the share price, and that helps his chances of keeping the airline independent. Kjos is obliged to respect all shareholder interests but you don’t spend a quarter-century doggedly building an airline only to give up when it gets really exciting.
As I’ve explained before, Norwegian’s finances are in pickle because it’s ordered too many planes and because launching low-cost, long-haul services is expensive. It looked to be heading for a cash-crunch this year and, with the stock having shed more than half its value over the past 24 months and short-sellers piling in, options were narrowing.
Book equity as a percentage of total assets was just 4 percent at the end of March, which forced Norwegian to raise 1.3 billion kroner ($160 million) in fresh capital at a chunky discount.
Now, bid speculation has caused Norwegian’s shares to rebound, which safeguards its ability to raise more capital if needed. Stoking speculation of a rival bid also makes the airline more expensive for IAG, or anyone else, to buy. The shares jumped as much as 16 percent on Thursday.
In the meantime, Norwegian can get on with putting its finances in order for its “last phase of extensive growth.” First- quarter figures showed an improvement in unit costs and Norwegian is divesting scores of aircraft.
Of course, the value of Norwegian’s equity -- about 1.4 billion euros at current prices -- wouldn't be much of a deterrent to a serious bidder, although roughly 5 billion euros of net debt and capitalized rent obligations might be.
IAG has plenty of cash and it’s conceivable other well-capitalized airlines will enter the fray, as Kjos hints. Norwegian’s long-haul routes would complement Ryanair’s European network, for example. Yet Ryanair’s Michael O’Leary hasn’t had many kind things to say about Norwegian and an acquisition would dilute his industry-leading profit margins.
All the same, a buoyant share price doesn’t hurt when trying to convince the board the company can thrive on its own. Expect Kjos to keep talking about how everyone wants to buy Norwegian.
Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.
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