More Turbulence Ahead for Norwegian Air

Norwegian Air

NAS 1.77%

Shuttle has long been seen as one of the airlines that would have a hard time surviving 2019. While reports of its demise have been exaggerated, the trans-Atlantic disrupter will still struggle to navigate the rest of the year.

Since 2013, Norwegian has led a breakneck expansion with the promise of bringing the low-cost model of short-haul airlines such as Southwest to flights across the Atlantic. But the company now has a massive debt pile, and keeps bleeding cash. With a $320 million bond payment looming in December and demand for flights weakening in Europe, its shares could have much lower to go.

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Norwegian’s very survival has surprised many analysts, who were expecting it to go bust during the winter low season after triggering loan covenants that mandate a minimum level of cash and balance-sheet equity. In the end, it dodged the bullet thanks to a rights issue.

The key problem is that, for all the hype around budget long-haul airlines, the business model hasn’t proven workable beyond a few select routes.

Investors also overvalued Norwegian for a long time because of the expectation that another carrier would buy it. Yet

British Airways

owner IAG said earlier this year it would sell its roughly 4% stake, dashing takeover hopes. Norwegian stock has since dropped almost 70%. Now investors are left facing the bitter reality of a debt pile that no airline in aviation history has managed to escape.

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Norwegian can survive as a niche carrier if it manages to shrink to a more manageable size and focus on key routes. It is finally moving in that direction. Norwegian’s co-founder and anchor shareholder

Bjørn Kjos

stepped down as chief executive last month after 17 years. The airline is now selling some of its planes and cutting down on money-losing routes.

Last week, it announced the end of its flights between Ireland and North America from September. This follows the announced closure of the Orlando-Stockholm and London-Las Vegas routes, and the suspension of many others—like Boston-Paris and Los Angeles-Copenhagen. These are much bolder steps than those taken before, which only involved slashing capacity in short-haul flights.

But Norwegian’s shares need to go much lower to justify a bet on this restructuring plan. With an enterprise value equivalent to 8 times operating earnings, it is still the most expensive airline in Europe. The valuation seems likely to erode further as the company struggles to meet debt payments over the coming months and to manage the grounding of its 18 Boeing 737 MAX jets.

The company is taking steps to raise cash, and on Monday said it was selling its stake in a profitable bank subsidiary. But it may still need to issue equity again, further diluting the ownership of current shareholders.

Growing pains can be difficult for investors. In the case of Norwegian, shrinking pains could prove even worse.

A Norwegian Airlines Boeing 787-9 Dreamliner took off from Los Angeles heading for London in June.


KC Alfred/Zuma Press

Write to Jon Sindreu at

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