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Is Low-Cost Airline, Norwegian Preparing the Stage for a Quick Sale? Shares Up On Speculation

Is Low-Cost Airline, Norwegian Preparing the Stage for a Quick Sale? Shares Up On Speculation

Is Bjørn Kjos, the founder and chief executive of the upstart low-cost, long-haul airline, Norwegian preparing a quick sale of what has become one of the most disruptive forces in the aviation industry?  That’s certainly what many are thinking, following comments Kjos made at an annual airport’s conference yesterday.

Speculation that the rapidly expanding carrier would be sold started rather unexpectedly in April when International Airlines Group (IAG) – The owners of British Airways, Iberia and Aer Lingus, as well its low-cost brands, Vueling and LEVEL – suddenly bought a 4.61% stake in Norwegian.

The acquisition of shares by IAG apparently took Norwegian by surprise.  The airline said it had no prior knowledge of IAG’s interest in Norwegian and had not been approached by IAG prior to the stake being bought.

IAG said it had acquired the shares in order to evaluate a possible bid for Norwegian – soon after, Kjos confirmed that IAG had made two separate bids to buy his airline outright but both had been rejected because they significantly “undervalued” Norwegian’s worth.

It’s no secret that IAG sees’s Norwegian as a big threat – its long-haul, low-cost brand LEVEL was created in direct response to Norwegian’s disruptive business model.  British Airways has been forced to lower fares and “densify” some planes in order to compete with Norwegian’s brand new Boeing 787 Dreamliner aircraft.

Norwegian has invested a lot of money into its rapid expansion plans and has been a pain for legacy European airlines – yet, despite its popularity with passengers and a trophy cabinet which is full to the brim, Norwegian’s business model has not yet been proved.

The carrier is still loss-making and some senior airline executives have been highly sceptical of Norwegian’s chances of long-term success.  After speculation that Ryanair had shown interest in acquiring its rival, the Irish low-cost carrier said it “did not catch falling knives.”

IAG's low-cost long-haul brand, LEVEL was widely seen as been launched to compete head-on with Norwegian. Photo Credit: IAG
IAG’s low-cost long-haul brand, LEVEL was widely seen as been launched to compete for head-on with Norwegian. Photo Credit: IAG

Willie Walsh, the chief executive of IAG has also moved to pour cold water on a possible bidding war for Norwegian after Kjos said other airlines were circling.  Walsh said he wasn’t expecting to announce a deal anytime soon, and claimed IAG would not make a hostile offer for Norwegian.

“This isn’t a deal I have to do. We have expressed an interest. If they don’t want to be bought by IAG, fine,” Walsh told reporters at a CAPA Centre for Aviation Conference in Sydney last week.

“We are not going to engage in any ridiculous bidding wars … We know what the value to us would be and that doesn’t change because somebody else expresses an interest.”

But other airlines really are interested in Norwegian.  A couple of days ago, Carsten Spohr, the head of Lufthansa told German newspaper, Sueddeutsche Zeitung that his company could be interested in acquiring Norwegian.  The Lufthansa group already owns SWISS, Austrian Airlines, Brussels Airlines and its own low-cost brand, Eurowings.

“In Europe, everyone is talking to everyone. There’s a new wave of consolidation approaching. That means we are also in contact with Norwegian,” Spohr told the newspaper.

“Takeovers are always a question of strategic value, the price and anti-trust. There are no easy answers,” he continued.

Could Norwegian be folded into the Eurowings brand? Photo Credit: Eurowings
Could Norwegian be folded into the Eurowings brand? Photo Credit: Eurowings

Shares in Norwegian rose rapidly as a result of Lufthansa’s public disclosure of its interest.  Up 9% after taking a tumble following IAG’s failed bid for the carrier.

And now Kjos appears to be suggesting he is willing to bow out and let the airline be sold.  Yesterday, the chief executive told an airport’s conference that Norwegian was reaching a size that would allow it to become profitable, saying it was now simply a matter of “refining the business going forward.”

“Everything is for sale if the price is right but I will listen to the other shareholders. If they want to sell, I will not be the one that holds it back,” Kjos told a Reuters reporter on the sidelines of the conference.

Maintaining that Norwegian could make it alone, Kjos added, “But if the owners decide that we should be part of another group then I will listen to them.”

There’s every possibility we could hear an announcement very soon.  The question then will be what will happen to the Norwegian brand – Will it retain its name and identity or would it be folded into an existing low-cost airlike like Eurowings (should Lufthansa win the battle)?

Expect to hear more news in the not too distant future.

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