Shares in Norwegian Air rose 10 per cent after the chief executive of rival Lufthansa said his company was interested in buying the Scandinavian low-cost carrier.
In an interview with the Süddeutsche Zeitung newspaper in Germany, Carsten Spohr said: "Everyone in Europe is talking to everyone right now. There is another wave of consolidation. This means that we are also in contact with Norwegian."
He said all acquisitions were a matter of value, price and opportunity, with “no simple answers”.
Lufthansa declined to answer further questions. Norwegian said it had received several expressions of “indicative and preliminary interest in share acquisitions, mergers … and various forms of operational and financial co-operation”.
Norwegian has said previously that it has had conversations with several potential suitors about a takeover. British Airways owner IAG bought 4.6 per cent of Norwegian in April 2018 and made two approaches to buy the carrier for an undisclosed price, both of which were rejected by Norwegian's board.
However, analysts were sceptical about a potential Lufthansa/Norwegian deal, saying it made far less strategic sense for Lufthansa than for IAG. “The synergy values would be a lot less at Lufthansa,” said Daniel Roeska, analyst at Bernstein. “In a rational world, they should have a lower willingness to pay.”
Another analyst, who did not want to be named, said there was a “powerful industrial logic” for the IAG/Norwegian combination. BA would be able to protect its profitable north Atlantic routes from Norwegian’s long-haul low-cost services, it would increase its fleet and it would win more slots at Gatwick airport, which is operating near capacity. “None of that applies to Lufthansa,” he added.
Bjorn Kjos, Norwegian's chief executive and joint biggest shareholder, has said of the IAG stake: "We are happy to have IAG as an investor. Needless to say, they are not the only interested party that has approached us."
Mr Kjos has also said Norwegian had discussions with low-cost carrier Ryanair, but Ryanair denied this: "There is no truth to these claims. We have not made an approach to Norwegian and we have no interest."
A spate of consolidations in the European aviation industry has followed the failure of several airlines in 2017: BA bought Monarch Airlines’ Gatwick slots, Lufthansa bought parts of Air Berlin, and Lufthansa and easyJet have both expressed an interest in Alitalia. The impact of a rising oil price on profitability has also prompted strategic thinking about consolidation.
Lufthansa may be in exploratory mode, Mr Roeska said: “As long as Alitalia is not progressing, investigating the Norwegian case makes sense for Lufthansa’s M&A team.”
The second analyst suggested that interest from other potential suitors would benefit Norwegian by “beefing up the price”. However, IAG chief executive Willie Walsh told his company’s agm last week that he would not engage in a “bidding war” for Norwegian.
Industry figures have questioned the sustainability of Norwegian’s business model, which has involved ordering large fleets of aeroplanes and expanding unprofitable transatlantic routes on top of its profitable short-haul Nordic business. Bernstein has estimated that Norwegian loses €20,000-€25,000 on each of its transatlantic flights, and Michael O’Leary, Ryanair chief executive, has predicted its bankruptcy as the oil price has risen.
Norwegian had negative free cash flow of 3.8 billion Norwegian krone (€402 million) in the first three months of the year, although its operating revenue rose by a third from the same period a year earlier to 6.99 billion Krone. The group’s net loss shrank from 1.49 billion krone in the quarter last year to 46 million krone.
Copyright The Financial Times Limited 2018