According to the news report by Bloomberg, the parent company of British Airways, IAG SA has bought a stake in Norwegian Air Shuttle ASA. IAG also stated that it is thinking about making a complete offer for the discount airline. This potential deal is another in many such deals that is leading to an increasingly consolidated airlines market in Europe.
In fact, EasyJet and Deutsche Lufthansa have already divided up most of the assets of the liquidated carrier Air Berlin between themselves. The failing Italian airline, Alitalia SpA is attracting possible buyers such as EasyJet and Lufthansa as the government tries to save the airlines. Ryanair has acquired Austria’s Laudamotion (previously called Niki).
And SAS is planning to standardize its fleet so that it can cut costs and remain competitive in the imminently expected industry shake-up.
IAG has been looking to buy airlines in the UK as well as Europe. Prior to its offer for Norwegian, IAG also targeted Air Europa Lineas Aereas.
After the news broke, the shares of the discount airline soared as much as 47% in trading. Norwegian Air Shuttle currently has a market value of greater than $1 billion. However, a deal such as this could shoot up the company’s value – including its debt – to $3 billion. The sources that supplied this information wished to stay anonymous as the negotiations are still confidential.
Norwegian’s market value shot up to 10.5 billion kroner ($1.35 billion). Short sellers who were betting heavily against the airlines’ stocks also helped push up the company’s stock prices this week. This week alone, Norwegian’s stocks have climbed by 10%, which has helped offset – somewhat – the massive 39% nosedive suffered last year.
IAG finally made an official statement, saying that it would use its 4.6% stake in Norwegian to start negotiations for a complete offer. By buying a stake in the company, IAG has made it harder for the airline to brush off a bid from them. Additionally, it would serve to deter competition from bidding for this low cost carrier.
According to Goodbody Stockbrokers’ Mark Simpson, IAG’s move shows how serious the company is about taking this deal all the way. By first buying a stake in Norwegian, IAG can enter negotiations with very clear intentions.
Norwegian has become a thorn in many airlines’ side with its low-cost but long-haul flights. In fact, the carrier has actually shaken up the airlines industry with its competitiveness. And now, the carrier in imposing on IAG’s territory in London as well as Latin America.
The carrier’s low cost strategy has forced the larger mainliners to rethink their strategies in the last few months to woo back travelers. However, the extremely low fares the company offers has stretched its finances to the point where it has had to sell of brand new aircraft.
IAG already has its own low-cost carriers called Aer Lingus and Level. However, after monitoring Norwegian’s performance for the last few months, British Airways’ mother company realized it needed to kill two birds with one stone – eliminate the competition as well as expand its network. The biggest weakness that Norwegian has right now is that it is severely burdened with debt, which can work to IAG’s advantage.
The potential of this deal boosted the entire airlines sector in the region this week. The reason? One of the biggest discount competitors in the sector would be eliminated. The Nordic region’s largest mainline carrier, SAS AB saw as much as 11% gains in its stock prices this week after the news broke. EasyJet share prices went up by 2.9% and the stocks of Ryanair went up 1.8% this week.