Norwegian Air: slows planned growth to 25% in 2017, improves its cash balance

Premium Analysis

In Sep-2017 Ryanair CEO Michael O'Leary claimed that both Monarch Airlines and Norwegian Air might not survive the winter. He has been proved right about Monarch, which went bankrupt on 2-Oct-2017. When it comes to Norwegian, this may have been more a case of Mr O'Leary's outspoken attention seeking.

Norwegian will now be seeking to convert innovative expansion, particularly on long haul, into sustainable profitability. After entering long haul markets in 2013, Norwegian fell into loss in 2014, recovering in 2015 and 2016, mainly (along with most airlines) thanks to lower fuel prices. After an operating loss in 1H2017, it looks set for another full year loss.

Norwegian's rapid fleet expansion has led to big increases in debt. In 2017 it has raised much needed liquidity through yet more debt and a large increase in sale and leasebacks. As a result, its 1H2017 cash balance was close to 2.5 months of revenue, compared with 1.5 months a year previously. With 234 more aircraft deliveries due in the next five years, more sale and leasebacks seem inevitable, in spite of the higher cost of leasing versus ownership.

Innovative strategic ambition can only be sustained by consistent financial performance. Norwegian is still at a relatively early stage on a rapid growth path. Moves to stabilise its cash balance are one step in that process.

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