Norwegian ‘cheats’ its way to lower losses

Norwegian announced a $5.9 million loss for the first quarter. Far less than expected. However, as is the norm for this peculiar airline, it used a legal cheat to hide a much bigger loss. By claiming asset revaluations from its holdings in the bank that part owns it (part of the wooden dollars circle of finance), it was able to offset its losses on paper.

The reality is very different. Despite strong revenue it’s loosing a fistful of money every hour of every day – now blaming fuel prices. Fuel prices that could have been hedged against.

The shareholding acquired by IAG has, as I suggested it might, frightened the living daylights out of the company. In a move designed to put off any potential purchasers, Norwegian Group announced it would (well maybe), be selling off its leasing arm, Arctic Aviation. It’s also made some slightly bizarre suggestions that other than its 787’s ALL of its short haul aircraft, including the new A321LR’s it has on order may simply be taken by Arctic Aviation and not used by Norwegian, but leased out to other airlines. Or maybe it’ll keep its 737’s or maybe it won’t. All this deliberate fence sitting is designed to throw potential investors off balance and deter them.

Sell off Arctic Aviation – and by ‘sell off’, how about to another company owned by the people who own the bank who finance Norwegian? – it will mean, with its aircraft portfolio and one of the things IAG wants – a pool of short and medium haul aircraft to give it flexibility among its airlines – gone, its a much less attractive target. IAG would very much like its own Leasing Company with a ready made stock of a 100 A320’s on order.

That then reduces Norwegian to long haul assets only and it makes a much harder target. A take over would be complicated, Italian, French, UK and EU competition inquiries would open up, and British Airways especially would be hard pressed as part of IAG, to say it wasn’t squashing short and long haul competition out of Gatwick.

EasyJet was already mulling what BA would have to give up at Gatwick – most of Norwegian’s short haul routes for one, and was quietly making it clear it wanted the slots! Nothing’s gone that far yet but the vultures are circling!

Either way Norwegian is worried IAG will buy more shares and start the process of a buyout. When it does Norwegian’s full books and it’s true state will be revealed, and if IAG backs out, it’ll be because they found out what I suspect they already know – and then they’ll go about crushing Norwegian like a rotten tomato.

My opinion has always been that Norwegian is a disaster waiting to happen. It’s latest decision doesn’t ring true with its need for aircraft to maintain its growth. Couple that to it’s clearly fake willingness to embrace IAG’s shareholding – while preparing an executive committee to fight/manage investor relations – and the story just doesn’t hold up.

Look out for existing investors buying up Norwegian stock to prevent anyone else from getting it.

Watch this space.