John Fredriksen, the tax-exiled Norwegian shipowner who ranks as one of the wealthiest men in the world, has stepped into the center of the turbulence around Norwegian Air. Fredriksen now seems to be bailing out a fellow Norwegian entrepreneur, Bjørn Kjos, who founded Norwegian Air but has needed fresh capital to keep his airline aloft.
Kjos announced Tuesday morning that he’s now getting it, in the form of NOK 3 billion through a major expansion of Norwegian’s shares. Kjos and his long-time partner in the airline, Bjørn Kise, have committed to subscribe for NOK 300 million and NOK 43 million respectively in what a press release from the company described as a “fully underwritten rights issue with proceeds of approximately NOK 3 billion.”
Other existing shareholders in Norwegian Air, which suffered a huge share price dive late last week and again Tuesday morning, “will be granted tradable subscription rights” for new shares in the airline. The rights issue, according to the notice from the company, is needed “to strengthen the Company’s balance sheet, to increase its financial flexibility and create headroom.”
The part of the rights issue that’s not pre-committed by existing shareholders has been underwritten by a syndicate consisting of DNB Markets, Danske Bank and one of Fredriksen’s many companies, Sterna Finance Ltd. It was described as a company “controlled by trusts established by Mr John Fredriksen for the benefit of his immediate family.”
It all suggests the introduction of a powerful new force into Kjos’ Norwegian Air empire, as two Norwegian tycoons in their 70s team up and attempt to get along. Both are known as strong and stubborn men accustomed to getting their way. Fredriksen, an extremely shrewd businessman, is making his first entry into the airline industry and must see potential for more profits. Kjos, who lost British Airways’ parent company IAG as a potential acquirer last week, was putting a brave and optimistic face on the deal.
“There are many of us who recognize the Fredriksen system,” Kjos told reporters at a hastily called press conference Tuesday morning. “It’s a fantastic, good system, and we are satisfied with getting them on the guarantors’ side.”
Norwegian Air, which launched a major intercontinental expansion program in 2013, has suffered a string of problems along the way, from severe difficulties with its Boeing 787 Dreamliners, to trouble with its Rolls-Royce engines, to a lack of back-up aircraft when things go wrong and ongoing labour challenges that climaxed in a pilots strike four years ago. Kjos is now keen to put all that behind him, noting that “Rolls-Royce has resolved its engine problems and now we’re moving optimistically forward with new capital.”
He claimed that the new share expansion couldn’t occur before now since the company has been in merger or acquisition “conversations” with “several interested parties,” including Lufthansa, IAG and even arch-rival Ryanair. Kjos boiled it all down to the following:
“We are strengthening Norwegian’s financial position and we are now well-prepared for the future,” Kjos said. “Now we have sown, and now we will harvest.”
The airline’s lengthy period of massive expansion will now taper off, however, and cost-cutting is underway. Norwegian, often accused of biting off more than it could chew when massive route expansion led to passengers getting stranded around the globe, may perhaps now try to digest what’s already on its plate. The airline announced last fall that it would cut costs by at least NOK 2 billion in 2019, it’s dropping some routes and closing six bases to save money, while trying to avoid layoffs.
Analyst reaction to Norwegian’s bulletins on Tuesday was largely positive. Newspaper Dagens Næringsliv (DN) reported that Nordea Markets thinks the new stock issue will strengthen the company’s balance sheet and address its pressing need for capital. SEB estimated that Norwegian will now generate a net profit of NOK 850 million in 2019.
Kjos claimed that his airline avoided any violations of its lending agreements. Numbers released Tuesday showed the airline with net capital of NOK 1.7 billion, just NOK 200 million more than the minimum demand in its financing terms.