The owner of British Airways International Airlines Group (IAG) bought a stake in Norwegian Air Shuttle and said it’s considering making a full offer for the discount competitor, signaling a new round of dealmaking in a rapidly consolidating European airline market.
Shares of Norwegian Air soared as much as a record 47 per cent on Thursday. A potential acquisition could value the company, which has a market value of more than $1 billion, at about $3bn including debt, people with knowledge of the matter said, asking not to be identified because the deliberations are confidential.
IAG will use the 4.61 per cent stake to initiate discussions with Norwegian, it said in a statement after Bloomberg News first reported it may make an offer.
“It’s an indication of intent in terms of their seriousness,” Goodbody Stockbrokers analyst Mark Simpson said of IAG’s move. “It gives them the platform to enter discussions with clear intentions.”
Taking out Norwegian would eliminate a fierce competitor that’s shaken up the airline industry with low-cost long-haul flights, and is now imposing on IAG’s turf in both London and Latin America. It would also give the the British Airways owner access to a fleet with some of the newest fuel-efficient jets. IAG, which has its own low-cost Level and Aer Lingus brands, pounced after monitoring Norwegian Air for the past three to four months, according to people familiar with the matter, as the Nordic carrier bled cash and struggled with its debt load.
“IAG’s interest in the company confirms the sustainability and potential of our business model and global growth,” Norwegian said in a statement.
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Shares of Norwegian Air soared 37 per cent around 2pm in Oslo, boosting its market value to about 9.5bn kroner ($1.22bn). The stock had previously jumped about 10 per cent this week, erasing some of last year’s 39 per cent rout. IAG dropped about 1 per cent, for a market value of about 12.5bn pounds ($17.7bn).
Other airlines rose broadly in anticipation that a large discount rival would be eliminated. SAS, the Nordic region’s biggest mainline carrier, gained as much as 11 per cent. EasyJet and Ryanair advanced 2.3 per cent and 1.7 per cent, respectively.
Any deal would accelerate a rapidly consolidating European airline market. EasyJet and Deutsche Lufthansa have already split up most of the assets of failed carrier Air Berlin. Alitalia has attracted interest from three groups, including EasyJet and Lufthansa as part of a government-led rescue effort. Ryanair, Europe’s biggest discounter, is taking over Austrian airline Niki. Meanwhile, SAS plans to standardise its fleet to cut costs as it positions itself for an industry shakeup.
IAG has been scouting for potential acquisitions in Europe and while the UK firm has set its sights on Norwegian Air, it has previously looked at targets including Spanish airline Air Europa Lineas Aereas, the people said. A spokesman for Air Europa, owned by conglomerate Globalia Corporacion Empresarial, declined to comment.
Norwegian Air’s aggressive foray into low-cost intercontinental flights has disrupted the market and forced bigger industry players like British Airways and Air France to take measures to woo travelers. But the company’s finances have been stretched, prompting Norwegian to take steps to raise or preserve cash -- including selling some of its brand-new planes.
“Everybody in Europe wanted to buy us,” Norwegian Air’s 71-year-old CEO, Bjorn Kjos, said in an interview this month. But the company has been investing in its aircraft, and he wouldn’t consider selling the business until the investments start paying out, he said. “If you decide to sell, that is when you take in other investors, but that has not been on our agenda at all.”
British Airways has been restructuring its base at London Gatwick Airport, where Norwegian has focused a large part of its long-haul operations. Norwegian is also adding routes from Spain to Latin America, where IAG’s Iberia and Vueling brands operate.
IAG said in the statement that no discussions have taken place to date and “that it has taken no decision to make an offer at this time and that there is no certainty that any such decision will be made.”
