Despite many years of trying to take over Norwegian, British Airways owner IAG has said it will not make any new bids for the airline. In fact, they’ve taken it one step further than that, announcing they will sell their stake in the airline, sending Norwegian’s share price plummeting.
Norwegian have been under pressure for months to control their balance sheet and have recently implemented a number of cost cutting measures. These have included axing crew bases and routes, removing lounge access for premium passengers and slimming down their fleet to boost operational efficiencies.
Norwegian share price takes a nosedive
Following IAG’s statement, Norwegian’s’ share price dropped as much as 26%, to take them to their lowest valuation since 2012. For IAG, the situation was reversed, with shares rising 1.5% immediately after the statement was released.
“International Airlines Group (IAG) confirms that it does not intend to make an offer for Norwegian Air Shuttle ASA and that, in due course, it will be selling its 3.93 percent shareholding in Norwegian,”
Previously, IAG had given Norwegian until the start of this year to make a decision on their takeover offer. At the time, Willie Walsh, IAG’s CEO, had intimated that a share sale was on the cards. Speaking at his third quarter results presentation, he said:
“We’re not going to keep the shares, we’re not an investor. We bought that small stake to initiate a conversation and if that conversation is not going anywhere, as it’s not, we’re not going to hold on to those shares.”
However, Bjorn Kjos, CEO of Norwegian, was clear that this was not the direction in which he wanted to head. At the time, he commented,
“We’ve never been working towards acquisition, we’re working towards being an independent, profitable company, and that hasn’t changed.”
Are Norwegian running out of fuel?
Having received two conditional proposals for a full takeover by IAG back in May, Norwegian were confident they didn’t need the Group’s help. Rejecting the proposals on the basis of undervaluation, they sought to remain independent of any airline group.
In response to the announcement by IAG today, Bjorn Kjos shared his own take on the outcomes. In a statement to the press, he said:
“Norwegian’s plans and strategy remain unchanged. The company’s goal is to continue building a sustainable business to the benefit of its customers, employees and shareholders,”
Despite Norwegian’s rapid rise to aviation success, having overtaken British Airways as the biggest non-US transatlantic airline this year, recent events have demonstrated how fragile even a big player like this can be.
Back in December, they had just nine days to turn things around, before facing a serious financial crisis. As a result, they announced a $230m cost savings programme, including refinancing a Boeing 787 in order to release some liquidity from their assets.
With finances already under immense pressure, this move by IAG couldn’t have come at a worse time. It was inevitable that their stock price would be driven down, which will make it harder for the airline to raise money going forward.
As it stands, Norwegian have no more room for manoeuvre. If they hit another bump, they’ll struggle to cope and unless another investor comes forward, we fear the Nordic carrier could be running out of fuel.