IAG mulls takeover of Norwegian?
 

Interesting times....

CP

Connections close to the source indicated that much of the interest was indeed strategic.

Problematic as we understand it is the structure of debt covenants and indeed the a bit of dis economy.

Having said that, always a sure sign the business cycle is long when Mergers are driving growth :E

Beeb:-

British Airways owner International Airlines Group (IAG) has confirmed that it is exploring a potential acquisition of low-cost carrier Norwegian Air Shuttle.
Shares in Norwegian jumped by as much as 26% on news of a possible tie-up before trading was suspended on the Oslo Stock Exchange.
According to reports, IAG wants to boost its market share amid increasing competition from low-cost carriers.

Norwegian declined to comment.

IAG said it had bought a minority stake in the airline with a view to opening talks about a deal.

"The minority investment is intended to establish a position from which to initiate discussions with Norwegian, including the possibility of a full offer for Norwegian," IAG said.
However, it said no discussions have taken place and it has not decided whether to make an offer.

If it isn't already, I reckon that in the not too distant future BA's decision to sell GO to one of it's potentially biggest competitors will be right up there amongst academics researching the biggest corporate mistakes / failures of the past 100 years.

Actually it isn't necessarily.
Perhaps the biggest mistake airline management is make searching for lower labour unit cost at the expense of everything else.

Permit the divergence, however if one looks at Qantas and Jetstar two airlines and one company the problem can be deciphered despite the accounting opaqueness.

Jetstar now has more aircraft than the parent. It flies 48% of the ASK that Qantas flies, yet generates only 22% of the revenue. This is suggestive of elasticity.

Thus had Go and BA existed side by side, the low fruit was the labour unit cost it may have jumped the containment too as a panacea for all ills!
Jetstar, was designed to lower labour unit cost and create tension between cost centres. A low fare airline struggles for yield. A Low Fare Airline is a volume business, the Achilles heel of the model is its demand elasticity. They struggle to generate consistent operating margins is evidenced by their rate of failure. The 'value proposition' full service airlines used to offer gave them a degree of demand in-elasticity, most certainly more evident in J class.

Qantas do not report Jetstar in two Operating segments (Domestic and International) yet they do Qantas. They choose not to. It is highly probable that Jetstar Internationally is a substantial loss maker.



BA saved itself from diluting its yield, but as they continue to hack into BA's value proposition (for they all went through the same MBA courses) they look for lower labour unit cost instead of yield maintenance.

Permit me to borrow from Herb Kelleher (South West) and I paraphrase badly;

"You can have the lowest cost airline or the largest revenue airline and still go broke, what matters is the gap between the two"

As I’ve said on another thread (on airlines airports and routes) IAG could very well be on a fishing expedition here to see exactly how bad the financials are. In any takeover bid they’d be allowed full access to the books...

Correct Rex, got to own enough to get to do diligence..

As our sources suggested, they are pretty worried about the debt covenants.

Even if you get access to the books there are plenty of stories from the business world where pre M&A due diligence failed to uncover catastrophic problems .

As in the QANTAS . Jetstar case the books tell you one thing but reality is another and in a situation like Norwegian arcane financial engineering might make it very very difficult to get a true picture of the real state of play.
Buyer beware

Air Berlin was a star, once.

Takeover of Norwegian
 

Would be a great shame. Just had a very nice Bangkok-Oslo flight in
Premium. Hesitate to think what effect an IAG takeover would have.

Attempt to rein in an upstart competitor, esp on those lucrative trans-Atlantic routes were Norwegian have made such inroads? Also, if IAG don't decide to move to a full bid then further questions will be asked about Norwegian's financial health. Win-win for IAG...

IAG only get a look at the books if Norwegian decide to co-operate . In a full on hostile takeover they don't have to hand over any info and even then:-

"The offeror will invariably conduct a due diligence exercise in relation to the target company before announcing an offer. The extent of the due diligence exercise in the case of a hostile offer will be limited
to reviewing publicly available information, such as the results of searches of public registers and financial analysts’ reports. In the case of a recommended offer, the due diligence exercise may be much more
extensive, but the target company will often seek to limit its extent, either because it does not wish the offeror, who may be a competitor, to obtain confidential information from it, or because it would not
wish the information to be made available to an alternative offeror (see paragraph 3.1 below in relation to Rule 21.3 of the City Code) or because the target company wants to ensure that details of a potential
bid are not leaked to the public.

For all these reasons, as a matter of practice, due diligence in public offers is often limited in comparison with private sales. The target company will, prior to handing over any information, ordinarily insist upon the potential offeror entering into a confidentiality agreement and it would also often seek to include in the confidentiality agreement “standstill” provisions, that is to say provisions restricting for a specified period the ability of the offeror to acquire target company shares without the consent of the board of the target company. There are difficult questions of law as to the "enforceability of standstill arrangement

Norwegians' model has yet to show one thing. Profits.

I wonder who approached who. Did IAG initiate things, because they are interested in the acquisition, and consolidation of some operations, especially at Gatwick, or did Norwegian ask to be looked at, maybe rather quickly ...

Is this shades of both B.Cal and Dan-Air, each bought for £1 (plus all the debts).

Show me one airline that has with growth that is as rapid as NAS. Their EBITA is keeping pace with their growth, they just need to increase efficiency or utility slightly and will be in profit.

Don’t you just love reading the arm chair economists who have an opinion on everything but knowledge of nothing on all matters to do with growing a business. I know I do.

IAG - Norwegian specifically stated they didn't know. I guess IAG went over 3% and so had to notify them....

A third option is that the banks who have funded Norwegian have initiated this with IAG, if they felt what they had lent was at risk.

That could be done without buying any shares at all.........

Could this be a play for some of NAL's aircraft orders. According to SAS latest 50ac purchasing announcement they struggled to get early deliveries since both Boeing and Airbus order books are pretty full. BA could need some quick respecced deliveries of 787's to compete with Qantas UK-Australia direct = before 2020. Plus some 737 long range orders woudn't go amiss for additional trans-atlantic point to point routes.
And with the high % short selling of Norwegian stock, BA where hardly going to loose on their investment combined with a takeover threat.

Don't you just hate democracy and freedom of speech.

I have posted elsewhere
.

Am also mulling Laker. The legacies would want to protect the lucrative North Atlantic. The 787s would be mighty useful for replacing all those ageing 747s and 777s.

The elephant in the room may well be competition authorities. BA, either direct or through one of their joint ventures, sit very heavily on the transatlantic market out of the UK. Having the authorities approve a take-over of Norwegian, supposedly including it's long-haul arm, is unlikely to take place without relinquishing other agreements.

I suppose it's exactly to get rid of the transatlantic, and growing Asia/South-America, competition out of Gatwick, that IAG are showing an interest in taking over Norwegian.

The matter is further complicated by the UK leaving the EU, and whilst Norway is not a member, it does abide by all the rules and subjects to the ECJ, in order to gain free access to the market.

Those contemplating the Norwegian aircraft being part of a deal, should remind themselves that the long-haul fleet, and the vast majority of the short-haul ditto, are leased.

But the orders are not, and they can be adjusted to suit BA or another IAG company.
The best of the leases can be taken in as already financed ac's, probably with part of it even advantageous US export financing.

WHBM the deal by which BA bought BCAL was not £1.00!!!

It was £237 million pounds as reported at the time. It was this high thanks to Scandinavian - SAS making a good offer for the airline and forcing BA to offer more than their initial offer.

The £1.00 deal was reportedly for Dan-Air

most / all the 787s are on the Irish AOC ?

The competition authorities won't give a damn. They will of course instigate a review and then it will be pointed out to them that if they don't let the deal through then there will be thousands of job losses after Norwegian goes bust. IAG will then sit back and see who blinks first. If the deal is blocked they lose some cash as the shares plummet, investor confidence wanes and Norwegian go boom. Then they lose a competitor and get the cash back eventually. Or if they succeed then they get rid of a competitor and no doubt have plans for turning it around and fitting it within the IAG group and improving yields eg: Cargo, interlining etc.

No, NAI (the Irish AOC) does not have 787s. All 787s are on the NUK or NAI AOCs.

BA can sell its shares ,make and profit and make NAS look a basket case for future investors.

Bit of a dilemma for competition authorities. To the Mandarins in Brussels they are looking at effects on the EU market. Not at all interested in the EFTA or third countries. While the U.K. is not yet one of these, they would be by the time any investigation is concluded.

OTOH the British authorities are charged with reviewing the activities of British companies, something IAG is not.

Well, perhaps the Norwegians will look at it.

will certainly be called in by the UK authorities

Popular press already reminding people of BA's predatory removal of competition over the last 60 years..................

OK then, they can let Norwegian go bust. Booked passengers will lose their money, staff will lose their jobs.

Well done officials.

From the Daily Telegraph :

What unthinking editor at the Telegraph thinks that because aircraft are new they are comfortable ? 9-across in a 787 long-haul !!!

https://www.telegraph.co.uk/travel/c...ways-takeover/

The Telegraph's constant slating of BA and praise for Norwegian has been really infuriating past few months. As if they have an agenda/monetary interest in Norwegian. Think that article you quoted failed to talk properly about the vast amount of debt Norwegian find themselves in. And yes 9 abrest 787 - done that once and hopefully never again!

And to the floor - if an acquisition occurs- good/bad/inconsequential for current BA pilots?

I think you're forgetting IAG is a Spanish company. As such Ms. Vestager would be highly interested in any merger/take-over of Norwegian by IAG. The market likely to be most affected, however, would be transatlantic out of the UK. But let's not forget Norwegian also have a significant presence in Scandinavia and Spain, both long- and short-haul. I therefore think it unwise to dismiss the EU in all of this; they would be highly interested in ensuring competition is not further eroded.

"OK then, they can let Norwegian go bust. Booked passengers will lose their money, staff will lose their jobs. Well done officials."

They are concerned with COMPETITION - they can/will make IAG divest itself of slots, routes, aircraft. The aim is to avoid monopolies

It is no co-incidence that air fares across the Atlantic are (relatively) high - 80% of flights offered are from one of the "Alliances"

There is very little direct competition and hence chance of a monopoly occuring should IAG offer and succeed in gaining a controlling interest in Norwegian. Norwegian does bucket and spade routes which are ten a penny with airlines competing for business. Their longhaul operations whilst including some main hubs also have a fair amount of secondary airports. Anyway this would have all been ticked off the boxes by Willys advisors well ahead of the share purchase. Thats what you pay the big bucks for.

You can't get pre-clearance before a bid - you have to take the risk. No doubt the Advi$ors will have done their best but at the end of the day it's politics - so expect France, Germany, Netherlands and Italy to wade in -if nothing else to run up IAG's legal bill and trap them in the regulatory swamp for a year or two

The money raised from the recent share offer was from core investors who are long term the second tranch to be approved on the 13th (today) is for investors not included in tranch 1 to ensure that they are treat equally.

This placing was to provide a buffer to ensure that norwegian did not breech its banking covenants.

2018 is front loaded in terms of delivery of new aircraft especially the 789, 2018 will like be a loss, but the underlying performance will be the key going forward.

In the meantime IAG have generated huge free publicity for Norwegian that is not negative.

Let’s see how this pans out

Provocative mistake ?
 

Putting that big picture of Freddie Laker in the tail of one of the aircraft was bound to provoke a reaction.