Norwegian’s stock price collapsed 71% and its by far and away the top of the current list of likely to fail airlines in Europe.
It seems it’s just a matter of time – has it got enough reserve cash to get through the crisis or is doomed within day or weeks?
If you believe most analysts it’s not going to make it to September, some doubt it will make it to May.
The airline group has been selling assets but that’s a finite policy with little room left to manoeuvre now.
The inevitability of European consolidation is just a matter of time, and bigger groups will come out of this crisis intact. But some are weaker than they look.
One of the key factors is how much debt the airlines are carrying compared to their earnings. Measured this way the top three fittest are RyanAir at 1.2 times, easyJet at 1.9 times and IAG at 3.5 times.
On the other end of the scale some are at almost alarming proportions – AF-KLM are at 7.7 times and Lufthansa Group at a positively frightening 12.4 times.
Even with that much debt these big groups have access to credit and cash deposits that can run for three to six months and they have resources to cut costs and operations because of their size and scale, and then bring them back when needed.
Airlines like Flybe as we know, and Norwegian just don’t have that luxury. They have cash for possibly 5 to 7 weeks and cannot afford for bookings to drop, as that means they eat up what little reserve they have faster. They can’t afford to loose a single revenue generating aircraft, and when you lease everything you have to pay no matter what you do with the aircraft. When you own it, it’s actually easier to save cash and lay it up.
The way that airline fuel futures and options are priced, a black swan event like the collapse in oil prices yesterday, doesn’t have any real impact on avgas that fast – it could be months if at all. It’s not going to save any airline this year.