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Old 13th Sep 2017, 08:26
  #206 (permalink)  
linmar
 
Join Date: Jan 2006
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It definately is. In the Q2 report the equity ratio fell to 8% comparing to 31 december 2016. Sure, it is the same ratio as a year earlier in Q2-16, but now the balance sheet include an asset of more than 2 billion NOK that is the stake(s) Norwegian has in OSM and Norwegian Finans Holding (Bank Norwegian). The latter was not included as an asset earlier and also gave a positive effect on the result in Q2. That is, Norwegian given the current RASK-levels and CASK (or unit revenue/unit cost) are likely to post a heavy loss for FY17, even including the 2 billion effect of Norwegian Finans Holding.

Unless things turn around and the increasing cost levels are halted and unit revenue increases, quickly, Norwegian will most likely need money from the owners within 12 months. Given that unit revenue fell in both July and August, that is not likely for Q3 at least.

More importantly for an airline is definately the fact that there is a shortage of cash. The current assets held at the end of Q2 was 15 billion NOK whilst the short-term liabilities were 21 billion NOK. The Q3 report will probably add about 1 billion NOK cash but then comes Q4 and Q1 where cash flow most likely will be negative, unless the company adds on additional borrowings, which might become more difficult should the quity ratio fall even further. The company needs at least 1.5 billion NOK equity to fulfill the current borrowings. Other solutions could be to sell off non-current assets such as aircraft but the effect on the balance sheet and equity ratio should such sales take place is uncertain. It could even prove to have a negative effect on equity ratio if the aircrafts value in the balance sheet is higher than the market value Norwegian are able to sell them with. I've seen airlines do that in order to keep the equity ratio at acceptable levels before.

All in all, the financial situation for Norwegian is difficult and what is most worriyng is the fact that unit revenue has been falling all year whilst unit cost has increased. Should the owners however be willing to invest further and add capital to the company, the situation could be resolved short term. However, the question is if the largest owner, Bjorn Kjos himself, is willing to invest further in Norwegian. Hi did sell in Q2 where he decreased his ownership in Norwegian from 24% to 17%, probably at a value of around half a billion NOK. I have no idea how much cash BK has but should the airline need an investment those 500 million NOK would cover a 3 billion cash investment in order for BK not to dilute the current stocks he has.

Now, I'm with a completely different airline (neither Norwegian, Ryanair, Easy, Monarch, Jet2, SAS or any of the main competitors on the European market) and I wouldn't jump ship to any of those two no matter the financial situation but pilots thinking of moving to Norwegian should think this through before changing. I don't know if they still ask you for bank guarantee for the type rating, but I would be very careful and read the fine prints of what happens if the airline goes bust or can't pay the owner of the debt before signing.
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