IAG buy stake in Norwegian with a view to a full takeover.

It was confirmed today by IAG, that they have bought a 4.61% stake in the low-cost carrier, Norwegian Air Shuttle.  IAG said:

Response to Press Speculation on Norwegian Air Shuttle ASA

International Airlines Group (IAG) notes the recent press speculation that it is considering making an offer for Norwegian Air Shuttle ASA (Norwegian).

IAG considers Norwegian to be an attractive investment and has acquired a 4.61 per cent ownership position in Norwegian (minority investment).

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 confirms that no such discussions have taken place to date, that it has taken no decision to make an offer at this time and that there is no certainty that any such decision will be made.

A further announcement will be made if appropriate.

This is very interesting on a number of levels.

Firstly, with regards to Norwegian, they’ve been growing hugely over the past few years and disrupting the market with low-cost longhaul from both Scandinavia and their increasingly large base at London Gatwick.

They have a fleet of brand new 787 Dreamliners, as well as 737-800s and 737MAX8s on order too.

However, they’ve not been making money – in fact the opposite, they’ve been increasing their losses, whilst the new aircraft deliveries have been increasing their debt.  There have been persistent rumours about their long-term financial strength.

From an IAG perspective, there’s a ready-made airline, with access to new 787 aircraft, a strong brand, but a lot of operational efficiencies yet to drive.

IAG’s key success has been by creating a ‘platform’ of centralised services for airline brands to plug into.  One procurement team, one IT team, one frequent flier currency (Avios) etc etc.

Ditching all of Norwegian’s business functions in favour of the IAG platform ones could yield significant cost savings.

Coupled with IAGs large cash pile, and much lower debt costs, could see a significant amount of their financing costs reduced as well.

Add in some feed from British Airways, Aer Lingus and Iberia, and you could quite quickly turn their situation around.

Interestingly, at the recent IAG results call, Alex Cruz was asked about long-haul expansion at Gatwick with the recently acquired Monarch slots and the answer was that it wasn’t going to happen due to lack of the requisite aircraft.  If the Norwegian acquisition happens then their fleet of 787s could quite easily fill that gap and enable a number of the IAG airlines to grow.

Finally, it could also mean the death of LEVEL as a brand.  Norwegian has far stronger name recognition and could therefore supplant LEVEL as the longhaul low-cost platform within the group.

Intersting times ahead.

2 comments

  1. Mustn’t forget their massive short haul presence which has a strong reputation.
    Buy Norwegian, kill off Level, rebrand Vueling….but would switching the Gatwick beach-fleet to Norwegian brand be a step too far?!

    1. Let’s face it, given BoB on short haul and then reducing and uncompetitive Club World cabins, one could argue they’re already there?

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