iahphx

Be as smug as you want, but you've been wrong about Norwegian from the start. They WILL eventually go out of business unless they radically change their business plan and, honestly, I suspect it is too late for that. Nothing you or I say about it will change this outcome. It's just a miserable business plan, and we have plenty of evidence already to confirm this. Sorry. It has nothing to do with them being a European airline, an American airline or a Martian airline. Business is business.

irishguy28

The ENTIRETY of Norwegian's business plan? Including the profitable shorthaul business?

Can you clarify please - if IAG buys them out (or if IAG buys the long haul parts, leaving the shorthaul business either in Bjorn Kos's hands, or to be bought by someone else [most likely Ryanair]) does that count for you as Norwegian "going out of business"? Will you feel vindicated if IAG continues with the model, either under the Norwegian brand, or under some other name?

itsallgood

https://www.bizjournals.com/seattle/...-aviation.html

Does this mean that Norwegian won't be flying these 6 787s?

iahphx

No, I think they're still planning on flying them. But they're running out of cash, so it's an accounting trick to remain solvent.

CPH-Flyer

The article does not really say one way or another, but I also suspect that they are just going to lease them. But do a lease from day one, rather than a sales and lease back transaction.

I don't know if it is an accounting trick. It is pretty SOP for many airlines to get planes this way. Look at how many orders GE-CAS or IFLC place with Boeing and Airbus. But yes, it certainly is an indication that cash is harder to come by for Norwegian than it has been.

oliver2002

Sale and lease back or outright lease is very common with airlines growing at a fast pace in this low interest climate.

itsallgood

I understand that. I just find it odd to switch from sale/leaseback to outright lease prior to aircraft delivery.

iahphx

I would submit that no financial move Norwegian is pulling these days is "very common" -- their combination of rapid growth with new aircraft and a failing business model makes for some interesting financial accounting.

BTW, this is a few days old, but is a very interesting take on IAG's unusual interest in acquiring the company. Cranky thinks IAG is being very clever; the jury is still certainly out on this, but they're definitely thinking outside the box.

IAG Shows Its Smarts With Effort to Acquire Norwegian | Cranky Flier

DoTheBartMan

Their longhaul business model seems to be a variation of the old joke:
- "We're losing money on every single item we sell"
- "Yeah, but we're selling lots of them!"

(replace "item" with "seat" for Norwegian)

itsallgood

It sounds like Norwegian will need to restate their quarterly financials for 2017. I've never seen this to be a good thing. https://www.reuters.com/article/brie...-idUSFWN1S011Y

CPH-Flyer

So, they were ordered to restate... That will not look pretty for 2017, as the profit was basically coming from the accounting they were forced to reverse.

irishguy28

When an American cannot refer to something - whether it is a business model or a newspaper - without also adding the ephithet "failing", it makes you wonder

itsallgood

Irishguy28, note the words, 'following a stock borrowing by its subsidiary'. That tells me that a JP Morgan subsidiary had to borrow the stock so that a client could short the stock. And this isn't new; it happened shortly after IAG announced its' 5% stake in Nowegian, forcing George Soros (a despicable individual) to cover his short position in Norwegian Air. In a nutshell, IAG's announcement triggered a massive short squeeze. Now some shorts are increasing their shorts along with new shorts joining the shorting of the stock at this share price. The dilutive share offering to all shareholders is not going to help this situation.

The problem now with Norwegian is the restatement of their 2017 filings. This article will explain it better than me: https://leehamnews.com/2018/03/07/no...ve-accounting/

Whenever I see this type of corporate behavior in US companies, I start looking at how to short the stock because it's an indication that there is going to be a lot of serious problems uncovered in the restatement. The first investor warning that things weren't right with Norwegian's books should have come when Tore Ostby resigned as CFO in July 2017 and the company went with an 'interim' CFO until January - that's not normal succession of senior corporate executives, especially one as important as the CFO.

I checked my brokerage (InteractiveBrokers) and there's no, zero, nada, NAS stock available to borrow. Even if there were, the interest rate charged on borrowing is fairly steep.


This concept of selling deep discount TATL tickets is nothing new. Airline history is littered with failed carriers who have tried to do this before.

iahphx

We'll have to see how this plays out. I doubt it will be pretty. Meanwhile, Norwegian better hope that oil prices stop going up. Most of their wounds are self-inflicted (horrible business plan), but they're also now getting hit with higher-than-they-should-be speculative oil prices. As folks in the industry know (but outsiders are often ignorant of), higher oil prices hit discount airlines the hardest. That's because fuel is a higher percentage of their overall costs, and their customers are the most price sensitive. Like AA and BA can raises prices and most of their customers will simply pay the difference, but some Norwegian customers are likely to not make the trip if they have to pay more.

I do think oil prices will stop going up because the current rally is largely irrational, but there's nobody on the planet who's been able to consistently predict short-term oil prices, so it's very much a crapshoot. If oil were to spike here, though, I doubt Norwegian would make it to Christmas.

itsallgood

Fracking should moderate the price, but there's another issue that could cause oil to spike further. Most airlines were very thinly hedged the last time I checked. If airlines start piling money into fuel hedges, it will continue to drive oil prices north.

And yes, I'd generally agree that discount carriers take a bigger hit when fuel rises but they also usually have newer more fuel efficient aircraft so a lot of that evens out.