March 21, 2018 / 9:47 AM / 8 months ago

Norwegian Air raises $168 million after warning of bigger loss

OSLO (Reuters) - Norwegian Air (NWC.OL) has raised 1.3 billion crowns (£119.48 million) in a share sale to help fund its expansion and cope with higher fuel costs after warning of a larger than expected loss in the current quarter.

FILE PHOTO: A Norwegian Air Boeing 737-800 is seen during the presentation of Norwegian Air first low cost transatlantic flight service from Argentina at Ezeiza airport in Buenos Aires, Argentina, March 8, 2018. REUTERS/Marcos Brindicci/File Photo

The budget airline is trying to crack the transatlantic market by undercutting established rivals but faces pressures to control costs and shore up its balance sheet.

Its fate rests on the still unproven strategy of adapting the model of low-cost short-haul travel to longer routes. A share price decline of more than a third over the past year indicates that some investors have doubts.

The company said on Wednesday it had sold shares at 155 crowns each, a 9.7 percent discount to Tuesday’s closing price. At 0948 GMT, the stock was down 3.1 percent at 166.2 crowns.

“The equity issuance provides breathing space,” said Davy Research, which has a neutral rating on the stock.

RAPID EXPANSION

The airline is massively expanding its transatlantic network to try to win market share, with routes between Canada and Europe starting in July. It recently launched flights from Britain to Argentina, and will also fly within the south American country.

It plans to raise its capacity by 40 percent in 2018.

FILE PHOTO: Bjorn Kjos, CEO of Norwegian Group, speaks during the presentation of Norwegian Air first low cost transatlantic flight service from Argentina at Ezeiza airport in Buenos Aires, Argentina, March 8, 2018. REUTERS/Marcos Brindicci/File Photo

The company said it could raise a further 200 million crowns in an issue for investors who did not take part in the private placement. That would take the total of new shares issued to 9.67 million, a 27.6 percent increase from before the placement.

“The results of the share issue show investors have enormous confidence in the company. And they should not, because Norwegian Air is losing an enormous amount of money,” said Karl-Johan Molnes, chief analyst at brokerage Norne Securities.

IN THE RED

Norwegian Air warned late Tuesday of a wider-than-expected first-quarter loss. [nL8N1R25WG]

The airline said its first-quarter pretax loss would come in at 2.6 billion crowns, versus a 1.8 billion crown loss in the same period last year, and fuel expenses were 12 percent higher than anticipated so far this year.

While the January-March revenue projection of 7.1 billion crowns was almost in line with the 7.24 billion estimated by analysts, according to Thomson Reuters Eikon data, the pretax loss was 550 million crowns bigger than expected.

Molnes, who has a “sell” rating on the stock, said Norwegian Air should dismantle the long-haul business because it could not replicate the success on shorter routes.

Long-haul customers are mainly high-paying business-class customers, while Norwegian Air is focusing on economy customers, he said. “They need to dismantle it very quickly,” he said.

Norwegian Air reiterated its confidence in building a profitable long-haul business and said now was the time it had to spend money to build up its transatlantic business.

“The risk is gradually reducing as we get the position and we get the scale. We are at the peak of the growth. From the back end of the year, the growth (in spending) will be slowing,” said Norwegian Air acting CFO Tore Oestby.

“This is still early days for us. We are very comfortable with our transatlantic operations,” he told a conference call with reporters and analysts.

Additional reporting by Joachim Dagenborg; Editing by Mark Potter an Keith Weir

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