UPDATE 2-Norwegian Air gets lifeline to prove it can make money

* Company says the funds cover its needs "beyond" 2020

* Firm still needs to prove it can make money - investor

* Low-cost operator trying to crack transatlantic market (Adds investor, context, bullet points, updates share)

By Terje Solsvik and Gwladys Fouche

OSLO, Nov 6 (Reuters) - Norwegian Air's third fundraising from investors in 20 months could be the airline's final chance to prove it can make money from cheap transatlantic air travel, one of its major shareholders said on Wednesday.

Shares in the budget airline fell around 10% after it raised 2.5 billion crowns ($272 million) from a discounted sale of shares, as well as a convertible bond issue.

It said the money would cover its needs "through 2020 and beyond based on the current business plan".

The move was the latest by acting CEO Geir Karlsen and Chairman Niels Smedegaard, both appointed earlier this year, to try to prevent Norwegian from joining the ranks of airlines that have collapsed due to industry overcapacity.

Norwegian, which has also been hit by the grounding of Boeing's 737 MAX jet, has raised 5.4 billion crowns from its shareholders since March 2018, including 1.3 billion last year and 4.1 billion this year, in addition to the new bond sale.

Norwegian fund Sissener AS, which invested in Tuesday's share issue and convertible bonds, said the additional funds had significantly improved Norwegian's prospects, although it still needed to demonstrate it can generate cash.

"They have to show they're able to earn money. I don't think the market will be as forgiving another time," the fund's founding partner Jan Petter Sissener told Reuters.

"They must show they can cut costs and generate a positive cash flow in 2020."

Sissener's funds are jointly the 12th-largest owner of Norwegian Air, according to Refinitiv data, although it declined to say how much it had invested in the latest fundraising.

DEBT PILE

The new shares were sold at 40 crowns each, a 13% discount to Tuesday's closing price of 46.06 crowns. The stock was trading at 41.4 crowns at 1211 GMT, down 10.2%.

Norwegian's $150 million five-year bond issue, at an interest rate of 6.375%, is convertible into its stock at a price of 50 crowns per share, the company said.

The bond sale, managed by Norway-based Clarksons Platou Securities, was priced at the midpoint of a 6-6.75% marketing range, with most buyers based in Norway.

A period of breakneck expansion left Norwegian with a whopping 61.7 billion crowns of interest bearing debt at the end of the third quarter, around ten times its stock market value.

The company has recently switched to retrenchment, cutting costs and selling older aircraft as well as its stake in Bank Norwegian. It also plans to shrink capacity by 10% next year.

In September, it convinced bondholders to accept an extended deadline for repayment to preserve cash.

But credit card companies, fearing for the company's future, have held back payments, while engine problems on some planes and the grounding of Boeing's MAX fleet have added costs.

Danske Bank analyst Martin Stenshall, who has a "buy" rating on Norwegian shares, said the fundraising, along with cost cuts and divestments, reduced the risk of investing in the company.

Brokers Nordnet said the stock could eventually rise on the news. "The added capital could turn out to be the factor that convinces investors," it said in a note to clients.

($1 = 9.1965 Norwegian crowns) (Additional reporting by Stine Jacobsen in Copenhagen and Abhinav Ramnarayan in London, Editing by Jon Boyle and Mark Potter)