This is in sharp contrast to other European budget carriers, which are often ranked among the best in the industry. Norwegian ranks among the bottom 10% of the worst airlines in the industry on debt coverage ratios, margins, and profitability. Norwegian’s business model of rapid growth and a debt-heavy capital structure have resulted in severe stress for its financials. Through this chart, we can conclude that Norwegian’s underlying problems are persistent and the company’s financial results are weak. In Figure 2, we rank Norwegian’s financial ratios within the global airline industry and benchmark them against a selected set of competitor European budget carriers (Ryanair, easyJet, and Wizz Air). 3 The airline announced a $230mm cost-saving program that included discontinuing selected routes, refinancing new aircraft deliveries, divesting a portion of the existing fleet, and offering promotional fares to passengers to shore up liquidity. The possibility of trade wars and uncertainty surrounding the Brexit withdrawal agreement represent additional sources of potential disruption or weakening in travel demand.Īlthough Norwegian has so far dismissed any notion of financial distress as speculation, it has simultaneously implemented a series of changes to prevent further turbulence. Potential downside scenarios include a crisis in the Middle East or other disruptions in oil, causing oil prices to spike. The most significant risks for airlines are geopolitical. Oil prices are expected to settle, and any further gradual increases in oil prices are expected to be compensated by rising airfares and fees. The report also cited rising interest rates dampening market liquidity while increasing the cost of debt refinancing and aircraft leases. 2 It stated the global air traffic remains strong and is growing above its average rate at more than 6% annually. S&P Global Market Intelligence’s sister division, S&P Global Ratings, issued an industry outlook for airlines in 2019 noting that the industry is poised for stability. Note: IAG operates under the British Airways, Iberia, Vueling, LEVEL, IAG Cargo, Avios, and Aer Lingus brands. The exception among the top five European airlines is Air France-KLM, which is crippled by labour disputes and its inability to reshape operations and improve performance.įigure 1: Credit Risk Radar of European Airspace Overview of credit scores for European airlines The airlines with the best credit scores are also Europe’s biggest airlines (Lufthansa, Ryanair, International Airlines Group (IAG), and easyJet). In addition to Norwegian, Flybe and Croatian Airlines rank among the riskiest carriers in Europe and share a similar credit risk assessment. The implied ‘ccc+’ credit score suggests that Norwegian is vulnerable to adverse business, financial, or economic conditions, and its financial commitments appear to be unsustainable in the long term. Norwegian’s weak position translate into the weakest credit score among its competitors. 1 Within CreditModel, the airline industry is treated as a separate global sub-model to better encompass the unique characteristics of this industry.įigure 1 shows the overview of S&P Global Market Intelligence credit scores obtained using CreditModel for European airlines. The model combines multiple financial ratios to generate a quantitative credit score and offers an automated solution to efficiently assess the credit risk of both public and private companies globally. S&P Global Market Intelligence has developed CreditModel TM Corporates 2.6 (CM2.6), a statistical model trained on credit ratings from our sister division, S&P Global Ratings. Coupled with the traditionally slow winter season, the airline may have to navigate through the storm clouds forming on the horizon. When we pull back the curtain and review the creditworthiness of European airlines to explore further some of the causes for Norwegian’s turbulent period, we see Norwegian’s business strategy and financial structure have made the carrier highly exposed. Norwegian’s problems are a continuation of what have been turbulent months for budget airlines in Europe resulting in a collapse of Primera Air, based in Denmark, near-default of WOW air, Iceland’s budget carrier, and most recently bankruptcy of Germania. The carrier has been battling with rising fuels costs, increased competition from legacy carriers, and persistent aircraft operational issues. John C.The headwinds are picking up for Norwegian Air Shuttle ASA (“Norwegian”), the eighth largest airline in Europe. Rio de Janeiro–Galeão International Airport Ushuaia – Malvinas Argentinas International Airport Gobernador Horacio Guzmán International Airport Martín Miguel de Güemes International Airport Governor Francisco Gabrielli International AirportĬataratas del Iguazú International Airport Terminated Destinations Country or territory
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