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Abu Dhabi, UAESaturday 23 February 2019

Norway's richest man hands Norwegian Air a parachute

Struggling carrier in rights issue underwritten by shipping magnate John Fredriksen and others to avoid breaching financial covenants

A Norwegian Air Shuttle jet at Arlanda Airport, outside Stockholm, Sweden. The carrier has won a lifeline. EPA
A Norwegian Air Shuttle jet at Arlanda Airport, outside Stockholm, Sweden. The carrier has won a lifeline. EPA

Norwegian Air Shuttle gained the backing of Norway’s richest man, providing some stability to the struggling discount airline as it searches for a new suitor following IAG’s decision to abandon its eight-month pursuit.

The shares fell the most on record after Norwegian said on Tuesday it had raised 3 billion kroner (Dh1.29bn) in a rights issue underwritten by investors including shipping magnate John Fredriksen to avoid breaching financial covenants. While the stock declined, the bonds advanced as investors welcomed the cash infusion, which eases concerns over Norwegian’s viability.

“I’ve known John Fredriksen for a long time, and we even have a CFO who has worked for Fredriksen,” chief executive Bjorn Kjos said in Oslo. “We’re very happy to have the Fredriksen group as a part of that guarantee consortium.”

Norwegian found cover just days after British Airways parent IAG said it had broken off talks on a potential takeover. The Norwegian discounter said it’s no longer in active discussions with suitors, freeing the company to address its balance sheet. Mr Kjos indicated Norwegian is still open to other potential buyers.

Asked about Deutsche Lufthansa, which held talks with Norwegian last year, and Ryanair, which has denied speculation of its interest, Mr Kjos declined to discuss specifics. “I can’t say who, I can only say that more than one interested party has contacted us,” he said, while praising IAG as “a very good company”.

IAG, Ryanair and Lufthansa did not comment.

Shares of Norwegian Air were trading 11 per cent lower as of 11:20am Norwegian time after dropping as much as 30 per cent in Oslo, near the company’s headquarters in Fornebu, Norway. The company’s bonds recovered losses recorded last week after IAG pulled out. Its €250 million (Dh1.04bn) of notes due December gained 13 cents on the euro to 96 cents, according to data compiled by Bloomberg.

IAG’s decision to walk away from the talks had spurred concerns about Norwegian’s finances, with analysts widely predicting that a capital increase was likely – although the rights issue is bigger than many had forecast. About 2.4bn kroner of the total will be guaranteed by DNB Bank, Danske Bank and Fredriksen, who last year pulled off the painful restructuring of his offshore drilling company Seadrill.

Mr Fredriksen, 74, has said he’s looking at new opportunities as he continues to diversify his wealth. Bloomberg estimates his net worth at $7.9bn, with almost half consisting of cash and other assets. The Norwegian-born Cypriot citizen made his fortune in shipping in the 1970s and 1980s.

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At the same time as he ventured into offshore rigs in 2005, he invested in salmon farming, a move that proved especially efficient in balancing his portfolio when the oil industry slumped a decade later. An investment in Norwegian would be his first in airlines.

Mr Kjos, who rejected two previous offers from IAG, has been struggling to weather a cash crunch, according to Bloomberg. His company is awash with capacity after one of the fastest growth spurts in aviation history, at a time when a European fare war has depressed revenue. Norwegian reiterated on Tuesday that the focus now will be on profitability rather than expansion.

Preliminary figures indicate a loss of 3.8bn kroner before interest and tax in 2018, with cash and cash equivalents of 1.9bn kroner, according to the company, which brought forward its fourth-quarter earnings release to February 7.

Norwegian must have a book equity value higher than 1.5bn kroner and more than 500m kroner of liquidity to comply with bond covenants, according to a previous presentation.

The company said it aims to reduce the level of spending through aircraft sales and the postponement of some plane deliveries, and clawing back money from Rolls-Royce as compensation for having to scrap some flights due to engine issues.

In September, Norwegian Air said it was planning aircraft sales including used Boeing 737s as well as some of the new Airbus planes it has on order to reduce it debt commitments.

Norwegian Air has committed to acquire 210 new aircraft from Boeing and Airbus by 2020.

"We have 90 neos [60 A320neo and 30 321LR] from Airbus on order. The Airbus 320neos are for all practical purposes for sale. We have started a process where we will try to find a new home for those aircraft," chief financial officer Geir Karlsen said at the time.

"The problem is not to sell them ... but to get the price we want ... Hopefully by the end of the year we should be able to disclose news on a transaction," Mr Karlsen said.

Norwegian had previously announced the sale of six used aircraft, Reuters said, and indicated as many as 140 planes could be sold over time as a part of the renewal of its fleet and to help reduce debt. Mr Karlsen said sales of used aircraft would continue.

Such sales would "probably to be sold plus/minus book value as it looks now. Hopefully a little bit above", he said.

The carrier has this year already announced base and route cuts, signalling the extent of its profitability issues, something that may have deterred IAG. Lufthansa also indicated at one point that it was mulling an offer.

Bidders may also be put off by a profit warning at Ryanair, Europe’s biggest airline, and uncertainty about how Brexit will affect flights and market developments as the UK, a major market for Norwegian.

Existing shareholders including Mr Kjos and chairman Bjorn Halvor Kise will contribute to the rights offer.

Updated: January 29, 2019 04:08 PM

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