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Norwegian Air Is Flying Again

Chris Bryant

(Bloomberg Opinion) -- A charismatic entrepreneur who prioritized growth over profitability, ran up a massive rent bill and then stepped aside when it looked like the company might run out of cash. No, not WeWork Cos Inc.; I’m talking about Norwegian Air Shuttle ASA.

On Thursday the hip transatlantic airline, loved by bargain-hunting American millennials, announced the first fruits of its turnaround under a new chief executive officer. Geir Karlsen replaced the company’s co-founder Bjorn Kjos as CEO this summer, and Norwegian’s chairman Bjorn Kise stood down in May.

As well as reporting surprisingly good earnings for the third quarter, Norwegian announced a long-awaited aircraft-buying venture with a leasing subsidiary of China Construction Bank Corporation. The deal should help Norwegian keep more of its own cash, which is handy given the airline’s massive spending commitments and other liabilities. Including lease obligations, Norwegian has $6.8 billion of net debt. The shares surged as much as 23% on the news, bruising the many hedge funds shorting Norwegian’s stock.

As with WeWork, Norwegian’s once giddy valuation imploded last year when investors started to doubt that the balance sheet was robust enough to support Kjos’s huge ambitions. Not content with revolutionizing transatlantic air travel, he started domestic flights in Argentina too.

The stock has lost more than three-quarters of its value since April 2018, and a capital increase in January did little to stop the rot: Credit card companies became anxious about Norwegian’s prospects and held back money it was due on ticket sales. Shareholders wanted evidence that Norwegian recognized the gravity of its situation and was responding. At last that appears to be happening.

Recently the company secured a two-year extension on about $380 million of debt that was about to mature. Norwegian has also reined in costs and sold aircraft. Meanwhile, capacity growth is expected to be flat this year and may decline by as much as 10% next year. That sounds like heresy for a growth company but it’s the right answer in such desperate circumstances.

This doesn’t mean Norwegian’s in the clear. The June to September quarter is always good for airlines, while the winter months are much tougher because there are fewer passengers and there’s less cash coming in. Boeing Co.’s inability to restart deliveries of the 737 Max passenger jet creates additional costs for Norwegian, which is a big buyer of the aircraft, and it’s still not clear when these issues will be resolved. 

For now, though, Norwegian is proof that losing a charismatic founder needn’t destroy a company’s fortunes. Indeed, it might be just the ticket.

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Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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