Norwegian: something isn’t quite right

It doesn’t matter what I hear about Norwegian services, customer reaction is always positive, the product seems to be what people want and they don’t mind saying so.

Behind the scenes I remain convinced there is something seriously wrong with this company and how it’s financed. I spent years in big corporate environments and I know, instinctively when the smell of BS is in the air. And with Norwegian, that smell just won’t go away. It’s not strong, but it’s always hanging about. Except at the London Aviation fair yesterday I watched it turn into a momentary fug and the air was thick with it, before being quickly blown away by the PR people, those amoral hacks who sell their souls to the devil for cash.

The Norwegian Group was forced to recognise that it may have to quickly sell its Irish based lease operation Arctic Aviation to raise cash. Cash shortages have been an issue it’s been rumoured, made public by RyanAir’s Michael O’Leary. Industry insiders know more about it and in August Norwegian Group shares were ‘shorted’ on the stock market by agressive traders smelling a rat. O’Leary’s comments caused a 10% stock drop on top of that. Share price helps determine worth and borrowing capacity. This wasn’t good news.

So the cash shortage appears to be true. Made worse by a massive spending spree on new aircraft they really can’t afford, because the way the company operates is starting to reach a point it can’t maintain.

My personal view is that Norwegian is like a legalised Ponzi scheme. It works by sucking in cash, which it invests in more aircraft to suck up more cash to invest in more aircraft to suck up more cash. You get the picture.

It’s also borrowing money to invest in aircraft it leases as part of the process to suck in more cash. It’s doubling its 787 fleet this year alone.

What happens if you don’t suck in enough cash? What if the market is too competitive? What if passenger numbers are high but the cash you thought they’d generate isn’t paying for what you have never mind what you’re committed to?

And you can sit there and say as a group you made a paper profit every year but it’s been marginal and insubstantial, and there have been some massive quarterly disasters, this year hasn’t been good.

What happens when the banks – even the ones your Group part owns, find it hard to lend you any more money? Income doesn’t match outgoings and you hit your credit limit?  You sell something or make cuts.

The later isn’t something Norwegian can admit it needs to do, any public perception it might be unable to be fully, blatantly, obviously forward looking and blisteringly successful, doesn’t sit with the PR generated image the public see.

Norwegian blustered their way past it. It even got reported on Bloomberg- never a good thing.

They claim they won’t sell Arctic until it’s taken delivery of 100 Neo’s next year (and its assets are worth more), but I’m not so sure they have that long. “Pride”, as they say, “cometh before a fall”. Norwegian is full of bloated pride and it’s spent too long believing it’s own hype.

Something isn’t right. And it never has been. I have no desire to be right. That it will make people like Willy Walsh, smugly titter into his morning coffee at IAG, is sufficient reason for me to want to be wrong.

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