IAG dumps Norwegian – the romance is over, so what does it mean?

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International Airlines Group decided not to pursue Norwegian Airlines. They purchased a share holding of around 4.1% in 2018 with an eye to making an offer for the whole airline. They did, it was refused by Norwegian without much discussion.

At the same time Norwegian issued a share offering which diluted down the IAG holding to 3.9%, and Norwegian’s share price bolted upward on the news of a potential second offer.

That news was used by Norwegian to fend off the bid again, and there was suggestion from Lufthansa that they too were interested. That may in fact have been a tactic to bolster Norwegian’s share price to put IAG off.

But Willy Walsh at IAG is not easily dissuaded from a target he sees as prey and fair game.

Norwegian’s rebuttal a second time, I have been told but asked not to say by whom as they were not authorised to discuss the matter, allegedly sparked renewed interest from IAG and they, queitly as these things are always done, would have been completing what’s known as due diligence. In other words digging up all of the finacial muck, good and bad on Norwegian.

Norwegian’s complicated list of companies, shell operations, banks, leasing arrangements and mind boggling financial strutures have been pretty opaque at the best of times. Few fully undertand where it all is and who owns what and why. Nobody is acting illegally it seems, but there’s a shocking level of complexity in the way the airline is set up, financed and managed. And you have to wonder why?

It was especially sensitive back in December when Danish analysts said it wasn’t financially strong enough to deal with some of its imminent stresses, in terms of lease payments and bonds due to be paid back. If its so delicate an issue and so much fuss is being made, again you have to wonder why?

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Brexit is going to have a big impact on the airline’s UK operations if things don’t go so well, it’s selling its forward ordered A321neo’s to anyone who will buy them from it (or lease them from its subsidiary lease holding company), and it cut back bases and staff at places it flies to to slash costs, on top of cutting frequencies on many routes.

It’s far eastern adventure turned out to be a disaster, and there was much hope it would be quite the reverse. Its Argentina operation got off to a good start – they almost always do, but rumour – and it is rumour – suggests that too, hasn’t been as successful as quickly as was hoped.

The airline has also, finally, and not before time, realised that endless forced expansion cannot continue withiut stability at the core – so that too has been paired back, and a period of consolidation has finally begun.

Yet many see 2019 as being Norwegian’s nemesis year. Costs for all airlines are up, profits on average are 50% of what they were a year ago – if they make a profit, and the first quarter of any year in the northern hempisphere especially is tough on all airlines. Possibly too tough for Norwegain to bare perhaps?

IAG informally walked away. At first everyone was OK, but they kept their shares, and Willy Walsh wouldn’t keep shares in an airline he knew was going to collapse would he? Then in the last few days, IAG announced there would be no take over and they would sell their shareholding.

For more than a few people that rang some alarm bells. After Flybe, which was on financial death row and clinging on to life support – indeed so desperately that it had to beg its buyers consortium ConnectAir, to lend it money in a rush almost overnight a week ago, Norwegian is seen by analysts as Europe’s least likely to survive major airline.

If it survives 2019 it can probably survive anything. I wouldn’t bet on it.

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