IAG confirms it will open talks with Norwegian to buy the airline

IAG, the parent of British Airways, Iberia and Aer Lingus, made a statement to the Stock Exchange on Thursday to confirm rumours that it intends to open negotiations with Norwegian Air Shuttle to buy the airline.  An initial share purchase has already been made.

Norwegian shares have jumped sharply on the news.

This is obviously a major development.  Norwegian has a brand new fleet and has proved an increasingly strong competitor to IAG in the UK.  LEVEL and Vueling are weak low cost competitors in comparison.

With Norwegian recently launching Singapore and Buenos Aires from the UK, it was likely to prove an increasingly strong competitor to British Airways – so why not buy it and snuff it out, at least from the UK?

With Gatwick getting increasingly slot constrained, this would also give IAG an exceptionally strong grip on that airport following the recent purchase of the Monarch slots.  It is also possible that, for monopoly reasons, a Gatwick slot sale would be required.

There is clearly potential to roll LEVEL and Vueling, which has a bad reputation, into Norwegian.

I would expect British Airways to very quickly close its Oakland and Fort Lauderdale routes if any deal does go through, since they are only operated to annoy Norwegian.  Loads on Oakland are reportedly under 50 passengers on some days.

This is the emergency statement issued by IAG after Bloomberg reported the share purchase:

“International Airlines Group (IAG) notes the recent press speculation that it is considering making an offer for Norwegian Air Shuttle ASA (Norwegian).

IAG considers Norwegian to be an attractive investment and has acquired a 4.61 per cent ownership position in the airline (minority investment). 

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.

IAG confirms that no such discussions have taken place to date, that it has taken no decision to make an offer at this time and that there is no certainty that any such decision will be made.

A further announcement will be made if appropriate.”

Norwegian has stated in response that it had no knowledge until this morning that IAG had bought any shares in the company and that it has not had any contact from the airline so far.

It is worth noting that the 72-year CEO, Bjorn Kjos, has a 27% shareholding and it will be virtually impossible for IAG to acquire 50.1% without his consent.  The Norwegian state investment fund has a further 9.9% and may vote tactically.  Whatever happens is likely to take a number of months, but the Aer Lingus acquisition proved that IAG is prepared to play a long game.

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