Norwegian’s financials, or potential lack of such, have raised eyebrows in the aviation world for some time now. Hoping to put those fears to rest – and continue selling seats as it heads into the traditionally slower winter season – the carrier announced the closing of a ~$275 million financing round. The company declared, “After the completion of the transactions, Norwegian is fully funded through 2020 and beyond based on the current business plan.”
Acting CEO Geir Karlsen further notes, “The capital raise will secure required financing of working capital during the winter season and create financial headroom as the company moves from growth to profitability.”
British Airways parent company International Airlines Group (IAG) bought a small stake in the carrier as part of a takeover bid earlier in 2019. As that petered out Norwegian also shifted its operational goals, and its founding CEO retired, as the company sought to shift from growth to profitability and survive on its own. The additional debt issue is the latest in a series of steps to that end. Among the other deals the company:
- Sold off ~$250 million of its shares in its associated Norwegian banking arm
- Extended the maturity date of its long-term, unsecured bonds by two years
- Secured a deal with China Construction Bank Leasing International to fund aircraft deliveries through 2023
- Sold 24 aircraft due for delivery in 2019 and 2020 to further improve liquidity
- Launched a US-based co-branded credit card tied to its CashPoints loyalty program
It is relatively uncommon for airlines to issue statements around their financial stability. For Norwegian, however, convincing the public of its stability is key to remaining in business. Passengers, especially in the leisure market, are less likely to buy if the airline is believed to be unstable or likely to halt operations in the near future. That reduces cash flow, further exacerbating the issues and often tipping the scales in favor of collapse. The move might also see some credit card processors loosen the purse strings related to payments. As airlines become more shaky the banks hold more of the cash, just in case refunds to passengers are required for future trips that do not operate. Again, that cash flow challenge can trigger further challenges for the airline. If the banks are confident in the “fully funded” statement then it could see lower holdbacks against the company.
All of this translates to the company continuing to sell seats through the winter doldrums and getting access to the cash flow from those sales (along with the cash boost) to keep the business moving. Of course, extending it past 2020 and into a business model that truly does deliver positive cash flow is a larger challenge. Getting the 787s back in the air reliably will help with that, once Rolls Royce gets the Trent 1000 engine issues under control. The return of the 737 MAX and associated growth that will trigger is less compelling for this plan, but still part of the 2020 expectations.
And, for consumers, a bit of comfort in the idea of buying tickets for their upcoming travels. Probably.
A favor to ask while you're here...
Did you enjoy the content? Or learn something useful? Or generally just think this is the type of story you'd like to see more of? Consider supporting the site through a donation (any amount helps). It helps keep me independent and avoiding the credit card schlock.
I completely agree with your take on this.
I am booking short-haul Norwegian travel well into middle of 2020. In the earlier half of 2019, I wouldn’t book Norwegian for as far out as even 6 months.
Good post Seth, and I’ve linked to here from the TripAdvisor forum.
It’s good to see Norwegian turning itself around after Kjos’ “retirement”; I suspect he’d been marginalized and told to go in Feb/March after the last bailout (which truly was desperation time).
The new management have done a very good job. The much better operating results in Q2/Q3 look to be due to basic common sense, aka ditch the recklessly unprofitable routes. But the deferment of the debt repayments and (finally, sans Kjos) closing the leasing JV is real progress. And don’t forget the interline with B6, which can offer competitive one stop fares to Europe and improve yields on their BOS and JFK routes.
They’re not out of the woods yet. But the ship is turned around and they’re now heading in the right direction.
I’m skeptical of the value of the JetBlue-Norwegian partnership, at least as initially reported. It needs to be more than just an interline deal. Those are all over the industry and don’t make prices better. Which is not to say that it needs to be a codeshare (I’d argue those are generally bad for passengers or could at least be implemented similarly without the codeshare confusion) but preferential pricing (baby steps) and coordinated offerings akin to a JV arrangement (the real deal) is what really matters. And the JV thing is very unlikely. Even preferential pricing for the through itineraries seems a distant dream.
@Seth
How much weight would you give the pronouncement? I’d very much like Norwegian to survive, but ultimately what they’re doing is just talk.
There is still a shareholder vote required so that could derail this specific plan. But I think it sufficiently likely to be approved that I was willing to write it up as such.
Beyond that, the numbers are showing signs of improvement but there are many micro and macroeconomic factors that will come into play. All this means to me right now is that buying a ticket for the next 12 months or so isn’t nearly as risky as it was before the deal was announced.
It’s time for this airline to die. I wish their workers well in finding employment with a more stable carrier. This “flag of convenience” carrier has been an industry weed that needs to be exterminated once and for all.
Good luck with that. And especially the horrid, anti-consumer fallout that would result.