Norwegian Air shares down as travel slump hits airlines

OSLO: Norwegian Air’s shares lost a quarter of their value on concerns about its ability to weather a dramatic drop in global travel as the coronavirus spreads.

Pareto Securities cut its rating on the airline’s stock, saying it was concerned about weak cash reserves and the risk that it may have to issue new shares to shore up its finances.

ABG Sundal Collier also cut its rating on the stock, from hold to sell, saying the firm was low on cash and in danger of breaching its loan covenants in the second quarter of 2020.

Norwegian Air said on Friday it had sold over two-thirds of its available seats for March and that the situation was “challenging” and “changing constantly”.

Analysts have warned that Norwegian, which has expanded the low-cost carrier model to longhaul flights, could be particularly vulnerable due to its high debts.

ABG Sundal Collier forecasts Norwegian will have a cash balance at the end of the first quarter of 1.2 billion crowns and at the end of the second quarter of 0.9 billion crowns.

“Too low, in our view. This means we expect Norwegian to raise new equity,” it said.

Theairlinehasalreadyraised5.4billionnorwegian crowns via three share issues in two years, as well as a convertible bond, to help shore up its finances.

The airline’s shares hit a 15-year low on Friday, down 95% from their 2015 peak, and the company’s market capitalisation is now 1.95 billion Norwegian crowns ($211 million).

Debts and liabilities amounted to 81.2 billion Norwegian crowns ($8.79 billion) at the end of 2019, while cash and cash equivalents stood at 3.1 billion crowns.

In 2018, Norwegian rebuffed takeover offers from British Airways’ parent company IAG, which has since said it was no longer interested in buying the ailing carrier. Norwegian’s convertible bonds have so-called covenants linked to the finances of a key subsidiary, Arctic Aviation Assets (AAA), which must keep its book equity and debt levels within certain minimum levels.

ABG expects a book equity at the end of the first quarter of 1.56 billion crowns, just above the bond covenant of 1.5 billion crowns, unless the airline can make a profit from the planned sale of an aircraft.