Aer Lingus owner IAG considers bid for Norwegian Air

Deal could help group boost market share as competition increases from low-cost carriers

IAG said it considered Norwegian to be an “attractive investment”, and had acquired a 4.61%  ownership position in the airline.  Photograph: Bloomberg
IAG said it considered Norwegian to be an “attractive investment”, and had acquired a 4.61% ownership position in the airline. Photograph: Bloomberg

Aer Lingus-owner IAG is considering a bid for Norwegian Air Shuttle, sources said, in a potential deal that would help the group boost its market share amid increasing competition from low-cost carriers.

A potential deal could value the Norwegian company, which has a market value of more than $1 billion (€810m), at about $3 billion including debt, the sources said, asking not to be identified because the deliberations are confidential. The company may still decide against a bid, they said.

Following a Bloomberg report, IAG said it considered Norwegian to be an “attractive investment” and had acquired a 4.61 per cent ownership position in the airline.

“The minority investment is intended to establish a position from which to initiate discussions with Norwegian, including the possibility of a full offer for Norwegian,” the carrier said in a statement.

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Representatives for Norwegian Air declined to comment.

Adding Norwegian would jolt IAG's foray into low-cost, long-haul services into hyperdrive. The owner of British Airways has already expanded its discount Level and Aer Lingus long-haul divisions, while adding European airport slots from failed British Monarch Airlines. In February, IAG predicted higher earnings this year as prices gain, costs fall and the group expands capacity for Level.

"Everybody in Europe wanted to buy us," Norwegian Air chief executive Bjorn Kjos said in an interview this month. However, the company had been investing in its aircraft, and he would not consider selling the business until the investments started paying out. "If you decide to sell, that is when you take in other investors, but that has not been on our agenda at all."

Shares of Norwegian Air soared as much as 26 per cent, the most in its history, before trading was halted in Oslo, boosting its market value to 8.3 billion kroner ($1bn). The stock had earlier jumped about 10 per cent this week, erasing some of last year's 39 per cent rout.

Consolidation

The European airline industry is poised for a further round of consolidation. Alitalia has attracted interest from a host of European rivals, including budget carrier EasyJet and Deutsche Lufthansa, as part of a government-led rescue effort. That comes on top of EasyJet's successful bid for defunct Air Berlin's operations at Tegel Airport, Berlin.

Meanwhile, SAS, the Nordic region’s biggest network airline, plans to standardise its fleet to cut costs as it positions itself for an industry shakeup.

Norwegian Air’s aggressive foray into low-cost intercontinental flights has disrupted the market and forced bigger industry players like British Airways and Air France to take measures to woo travellers. However, the company’s finances have been stretched, prompting Norwegian to take steps to raise or preserve cash, including selling some of its brand-new aircraft. – Bloomberg