April 22, 2019
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Norwegian Air may survive after all

 A view on Norwegian airlines Boeing 737-8JP at the Riga International Airport in Riga, Latvia, Aug. 8, 2018. EPA-EFE FILE/VALDA KALNINA

A view on Norwegian airlines Boeing 737-8JP at the Riga International Airport in Riga, Latvia, Aug. 8, 2018. EPA-EFE FILE/VALDA KALNINA

Madrid, Nov 12 (efe-epa).- Norwegian Air's chances of making it through the winter as an independent company have risen though, its stock remains an expensive gamble on a takeover that may not happen, according to a report from the Dow Jones Newswires made available to EFE on Monday.

Norwegian's breakneck expansion, designed to bring the short-haul low-cost model pioneered by Southwest and Ryanair to trans-Atlantic flights, has left it with a massive burden of debt and airplane leases. The company's bond covenants require a minimum 1.5 billion kroner ($177 million) of balance-sheet equity. Many analysts thought the company would crash through this level during the winter low season, likely causing a bankruptcy.

The shares have surged in recent weeks on hopes of a deal to offload some of these liabilities to a leasing company. This deal could even reignite the interest of International Airlines Group, which owns 4.6 percent of Norwegian and made two bids in the spring.

Yet there's another scenario that investors increasingly need to consider: Norwegian survives on its own.

One reason why this is now looking more likely is that third-quarter balance-sheet equity came in at 5.3 billion Norwegian kroner - a significant buffer. Another is oil prices, which have come back down to around $70 a barrel. The company previously said it would use any reprieve to hedge costs.

Finally, Norwegian's cash flows should soon look healthier as the company starts to receive some compensation from British jet-engine manufacturer Rolls-Royce Holdings for delayed deliveries of new Boeing 787s. The airline has booked the compensation in accounts receivable but hasn't yet got the cash. This quarter the payments and discounts will start flowing.

Norwegian's survival would be good for trans-Atlantic flyers, but won't necessarily make its stock a great investment.

A firm deal with a plane lessor before year end could halt speculation of a bankruptcy or dilutive share sale in 2019. The prospect of sharing the burden of Norwegian's huge plane orders could also bring IAG or another bidder - Lufthansa has admitted to running the math - back to the negotiating table.

At this point, however, such hopes seem a speculative leap too far. The outlook for airlines is more uncertain than it was when IAG made its first bid back in May, and IAG and Lufthansa may prefer to keep investing in their own low-cost long-haul brands, Level and Eurowings respectively. Unlike in the low-cost short-haul boom of the 1990s, legacy carriers aren't resting on their laurels while Norwegian tries to disrupt the trans-Atlantic market.

Without more solid indications of takeover interest, Norwegian's market value is simply too high for a company that, on its own, is probably destined to be a niche European player. Investors should keep an eye on the stock, but the time to buy isn't now.

By Jon Sindreu

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