Norwegian Airlines is looking to raise $350m through a Rights Issue. Following months of numerous reports that the airline is on the brink of serious financial trouble, the news was announced by Norwegian this morning at an Oslo press conference.
The past year has been rough for long-haul low-cost carriers. In October we saw the pressure become too much for Primera Air who became bankrupt. WOW Air had to lay off staff and downsize to avoid a similar fate. Similarly, Norwegian also had some financial difficulties to address.
Why Are Airlines Struggling?
A number of factors have been hitting all airlines, especially the low-cost carriers. One of the biggest costs that have been affecting carriers is the rising cost of fuel. While every carrier is affected, this particularly affects low-cost carriers who are making every effort to keep fares low. With higher fares, full-service airlines can easily afford to spend more on fuel.
According to a Business Insider interview with Skúli Mogensen, the CEO of WOW, the big mistake low-cost long haul carriers made was with their fleets. Operating multiple aircraft types with multiple cabins. In fact, we’ve recently seen Norwegian trying to cut the costs spent on their premium passengers with the removal of lounge access for most.
The airline has also been affected by its heavy fleet investment. A large number of aircraft acquisitions has left the airline in “heavy debt” which it now has to repay. This has been exacerbated by a number of other issues including problems with B787 engines, and more recently, a grounded aircraft in Iran.
What Is Happening Now?
Norwegian has already been taking action with regards to its finances prior to today. The main action was refinancing an aircraft to raise $30m in short term cash. Now, the airline announced it is going to focus on its profitability, rather than growth. This will include axing less popular routes and a rights issue of roughly $350m. A rights issue means that existing shareholders in the company are offered additional shares at a preferential rate. Of course, in this instance, it would likely be worthwhile for the shareholders to take the offer as they have an interest in Norwegian’s continued operation.
The news comes just days after IAG, announced they would be selling their stake in Norwegian. IAG had previously made two attempts to purchase Norwegian, however, both were rejected by Norwegian as undervalued. As such, IAG no longer wishes to hold onto the share which they purchased to make discussions.
What do you think 2019 has in store for Norwegian? Is a Norwegian rights issue the right path to take? Let us know in the comments below.