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View Full Version : Norwegian re-structuring


NEDude
10-23-2018, 07:02 AM
Looks like Norwegian is overhauling its corporate structure. "Norwegian Air Shuttle" will become a holding company with little to no operations. Norwegian Air Norway (NAN) will become the main operator for all E.U. long haul and all short haul operations, while Norwegian Air U.K. (NUK) will handle all long-haul operations out of Gatwick. NAN was just granted U.S. DOT approval with "virtually no domestic opposition". Do not know what this means for the NAI subsidiary or for the U.S. based pilots.

Norwegian subsidiary wins approval for US flights | Open Skies content from ATWOnline (http://atwonline.com/open-skies/norwegian-subsidiary-wins-approval-us-flights)


Andy
10-23-2018, 04:34 PM
No opposition because Norwegian is a dead man walking, just like WOW. I don't expect them to see 2019. WOW will likely see 2019; not sure about them surviving until summer 2019.

Another couple of 'legacy US carrier killers' that will be dead soon.

NEDude
10-23-2018, 09:06 PM
I expect Norwegian to be sold before it dies. There are at least two offers on the table.

I also would not put a whole lot of stock in financial predictions. The analysts got their Q2 estimates very wrong. For several years the experts predicted Virgin America would go under too, but then much to everyone’s surprise they started turning a profit and survived long enough to be bought by Alaska. Norwegian may not exist in name by this time next year, but they most likely will be around in some fashion, perhaps as a part of Level.


Andy
10-23-2018, 09:13 PM
I expect Norwegian to be sold before it dies. There are at least two offers on the table.

I also would not put a whole lot of stock in financial predictions. The analysts got their Q2 estimates very wrong. For several years the experts predicted Virgin America would go under too, but then much to everyone’s surprise they started turning a profit and survived long enough to be bought by Alaska. Norwegian may not exist in name by this time next year, but they most likely will be around in some fashion, perhaps as a part of Level.

Who is making an offer for Norwegian? AFAIK, all (lowball) offers have been withdrawn. Please name any offers.
If you're counting IAG as one of the companies, they withdrew from buyout discussions several months ago. https://www.ft.com/content/2b6101c4-970e-11e8-b67b-b8205561c3fe

Q2 was 'profitable' for Norwegian due to one time accounting credits for fuel and currency hedges. Absent those hedges, Norwegian would have had a loss.

Virgin only survived due to multiple restructurings. Those same restructurings cost Virgin employees almost all of the IPO stock that they were promised.

Andy
10-23-2018, 10:52 PM
The analysts got their Q2 estimates very wrong.

Here's Q2's report: https://www.norwegian.com/globalassets/documents/quarterly-results/norwegian-q2-2018-report.pdf

Profit after one time gains was NOK 300M ($36M).
Note that on page 4 and 5, there's a one time gain of NOK 454.8M on the Other losses/(gains) - net line. On page 5, the note is:
Other losses/(gains)-net include gains and losses from foreign currency contracts, forward fuel contracts, adjustment of market value for total return swaps, translation of working capital in foreign currency and net gain or loss from sale of fixed assets. Net gain in the second quarter was NOK 455 million (loss of NOK 197 million last year), including a gain of NOK 180 million from translation of working capital in foreign currency and a gain of NOK 254 million from forward contracts on currency and fuel.

Absent the currency/fuel contract gains, Norwegian would have had a loss of NOK 155M in Q2.


On the 25th, the Q3 report will be out. It's likely to show near zero profit based on their monthly traffic reports. Q3 is traditionally Norwegian's most profitable quarter.



As far as Norwegian becoming part of Level, that's off the table. IAG is no longer interested in Norwegian. Planes, maybe although the 787 is problematic due to having RR Trent engines.

NEDude
10-24-2018, 01:24 AM
As of October 9, IAG was still reported as being interested, saying they will sell if they cannot reach a deal:

https://www.proactiveinvestors.co.uk/companies/news/206680/norwegian-air-becomes-more-enticing-takeover-target-for-british-airways-owner-iag-206680.html

Regarding the Q2 results, it is easy to say "if it were not for XYZ, they would have made a loss". The problem is you cannot discount these things, that is why they are included. Regarding Q3 results, we will see tomorrow. But forecasts are often wrong.

NEDude
10-24-2018, 03:35 AM
As a further point of interest, it turns out there is quite a bit of re-structuring going on within Norwegian at the moment and the speculation in the local Oslo media is that it is related to negotiations with outside companies and the need to appease government regulators before approving a sale. Apparently all outstanding pilot training bonds are being refunded. Nearly 200 pilots were recently transferred to a new long haul base in CPH and were brought under a permanent, direct employment relationship status with the company, with a union negotiated contract. Supposedly this is to appease Norwegian government regulators who will not approve any sale while the company is holding on to employee training bonds and they require a certain percentage of employees be included as part of the deal. This comes as second hand information.

Andy
10-24-2018, 08:01 AM
NEDude, you still haven't named any companies interested in buying Norwegian. You mentioned Level, but I've already posted a link showing that IAG (Level's parent company) has zero interest in pursuing Norwegian anymore.

Q3's results will be released on the 25th of August (tomorrow). I'll be watching to see how they're doing on bond covenants.

As for releasing the pilots from training bonds, this may have been necessary as part of their restructuring. Or it may have to do with Norwegian having 140 aircraft for sale.

You previously mentioned that at least two companies were interested in buying Norwegian - can you name any? (Please list Ryanair; Michael O'Leary strongly denied any interest in Norwegian minutes after Norwegian's CEO said Ryanair was interested in buying Norwegian).

NEDude
10-24-2018, 10:50 AM
NEDude, you still haven't named any companies interested in buying Norwegian. You mentioned Level, but I've already posted a link showing that IAG (Level's parent company) has zero interest in pursuing Norwegian anymore.

Q3's results will be released on the 25th of August (tomorrow). I'll be watching to see how they're doing on bond covenants.

As for releasing the pilots from training bonds, this may have been necessary as part of their restructuring. Or it may have to do with Norwegian having 140 aircraft for sale.

You previously mentioned that at least two companies were interested in buying Norwegian - can you name any? (Please list Ryanair; Michael O'Leary strongly denied any interest in Norwegian minutes after Norwegian's CEO said Ryanair was interested in buying Norwegian).

I do not subscribe to the Financial Times, so I cannot read the article you posted. However a Google search shows two FT articles articles dated August 3, 2018, one with the headline "British Airways Owner IAG Looks to Sell Norwegian Shares", and the other with the headline "IAG to Offload Norwegian Air Stake After Bid Fails". Google shows no other articles from FT more recent than those which deal with the IAG/Norwegian relationship.

Apparently you failed to read the article which I posted. But it is dated October 9, 2018, so it is two weeks old as of today. Here is another link to it: https://www.proactiveinvestors.co.uk/companies/news/206680/norwegian-air-becomes-more-enticing-takeover-target-for-british-airways-owner-iag-206680.html. In addition to that article, here is another article dated a month after the FT articles which also re-affirms IAG's interest in Norwegian, stating that IAG "is likely to pursue the acquisition of Norwegian Air Shuttle": https://www.irishtimes.com/business/transport-and-tourism/aer-lingus-owner-iag-added-to-davy-s-list-of-top-picks-1.3616632. Here is another article, dated the day after the FT articles, which states that IAG will give Norwegian "one year to agree to a takeover deal": https://www.independent.ie/business/world/iag-will-walk-away-if-no-deal-for-norwegian-done-in-a-year-37183348.html.

So yes, I am including IAG as one of the airlines interested. I have three articles dated after your article which states IAG is still interested. If you have an article dated after October 9, 2018, please cite it.

Lufthansa has also been reported as being interested in purchasing Norwegian, and there has been no public retraction of that interest.

Regarding aircraft for sale, it is known that 65 of the airplanes are the A320neos which the company ordered a few years ago and is not operating. It is also beginning to sell its older 737-800s as it takes delivery of its 737 Max 8s and some remaining new 737-800s. Even with the selling of aircraft, the plan still shows 164 aircraft operating by the end of 2018, 186 by the end of 2019, and 212 by the end of 2020. So the selling of aircraft does not represent a shrinking of the airline, just a slowing of the growth.

Andy
10-24-2018, 02:44 PM
OK, thanks for the clarification. We'll have to wait until Norwegian's earnings call in a few hours to get more information.

NEDude
10-24-2018, 09:27 PM
On the 25th, the Q3 report will be out. It's likely to show near zero profit based on their monthly traffic reports. Q3 is traditionally Norwegian's most profitable quarter.



Results are out, 1.6 Billion NOK ($191 million USD) profit. Slightly lower than analysts expected, but significantly more than your "near zero" prediction.

https://www.cnbc.com/2018/10/25/norwegian-air-earnings-q3-2018.html

Andy
10-24-2018, 11:38 PM
Results are out, 1.6 Billion NOK ($191 million USD) profit. Slightly lower than analysts expected, but significantly more than your "near zero" prediction.

https://www.cnbc.com/2018/10/25/norwegian-air-earnings-q3-2018.html

The numbers don't make sense - the report shows a yield (.44) nearly identical to their unit cost (.43). That should have resulted in a near zero profit before one time gains/losses.

I'd have to comb over the quarterly report to find how they were able to pull a NOK 1.6B profit out of breakeven numbers.
Compare this Q's numbers to Q2's yield (.37) and unit cost (.41) which resulted in a loss of NOK 155M before one time gains.

dera
10-25-2018, 12:03 AM
The numbers don't make sense - the report shows a yield (.44) nearly identical to their unit cost (.43). That should have resulted in a near zero profit before one time gains/losses.

I'd have to comb over the quarterly report to find how they were able to pull a NOK 1.6B profit out of breakeven numbers.
Compare this Q's numbers to Q2's yield (.37) and unit cost (.41) which resulted in a loss of NOK 155M before one time gains.

You're forgetting ancillary revenue?

Check out the Principal repayments. Looks like they're not paying back their debt, just the interest?

Andy
10-25-2018, 09:33 AM
You're forgetting ancillary revenue?

Check out the Principal repayments. Looks like they're not paying back their debt, just the interest?

Ancillary Revenue should be included in yield.

Yield for airlines is total passenger revenue/revenue passenger km + total cargo revenue/freight ton km.

Ancillary revenue should have been captured in passenger and freight revenue.

As far as the debt levels, I noticed that it looks like they're rolling maturing debt plus increasing their debt load. They went from NOK 18.2B in debt one year ago to NOK 30.1B in debt at the end of the quarter. And their cash on hand shrunk by NOK 500M.


They also mentioned doing JVs (joint venture) on the sale of their aircraft which may be the mechanism that they're using to fudge their numbers. They had to restate their numbers last year due to liberal accounting techniques.

NEDude
10-26-2018, 05:37 PM
IAG's Willie Walsh stated yesterday (October 25, 2018) that they are still interested in a takeover of Norwegian and could wait up until August 2019 to complete a deal:

https://skift.com/2018/10/26/british-airways-owner-hasnt-quite-given-up-hope-on-landing-norwegian/

Reports in the Irish media are that it is a Chinese firm that Norwegian is in talks with to form the joint venture:

https://www.independent.ie/business/norwegian-misses-target-but-shares-soar-amid-china-talks-37459430.html