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The speculators who launched themselves against Norwegian have experienced losses of a billion.
When bank interest rates approach zero, the appetite for risk increases for people who want a return on their savings. And when “everyone” throws money into the bag, prices go up.
This is a dangerous mix that recurs from time to time. In the past, there was a good sell signal when taxi drivers started talking about stocks. There is nothing wrong with the taxi industry, but word of mouth is that the stock market is nearing its peak when God and everyone has become shareholders.
Norwegian is a good example. Thousands of Norwegians jumped at the airline, and in total the company’s paper value exceeded 12 billion kronor in May. As I wrote in a comment in May: “Then there will be overcrowding at the emergency exit.”
So far this year, the share price has fallen from 43.50 to one crown. The price drop is an incredible 97.33 percent, and to kill a whim that many can get: it is a myth that everything that goes down must go up. On the contrary, the opposite happens: most companies go bankrupt sooner or later.
So I get angry that this is not a bankruptcy notice, but an encouragement to approach Norwegian a bit analytically and fundamentally. The market value of the company is now NOK 3.6 billion and the money is coming out of the coffers calmly.
Investing money in Norwegian at the moment is betting that the state will open the money bag. When the company presented the result of minus NOK 4.8 billion over the past six months, Schram said that the guarantee on the government loan is good, but not sufficient.
– We see our closest competitors receive significant liquidity support from their authorities because aviation constitutes critical infrastructure, CEO Jacob Schram said, adding that the loan guarantee is not enough for Norwegian to overcome the crisis as they are now market conditions.
On the positive side, he says that Jacob Schram seems honest and straightforward and that he dares to run a tough race for creditors to find solutions.
But the crisis is far from over. In the first half of this year, Norwegian posted a turnover of NOK 7.1 billion, compared with NOK 20.2 billion in the same period last year, or a 71 percent drop in passengers. There are 140 planes on the ground and 8,000 employees at the gate. According to the interim report, Norwegian had NOK 5 billion in cash and near cash at the end of July, against an interest-bearing debt of NOK 47.7 billion.
The risk is formidable: “While the company believes that there is a reasonable opportunity to resolve potential loan defaults and raise sufficient working capital, there is a significant risk that the company will become insolvent and go bankrupt, given that the company cannot reach agreement with creditors, gain access to working capital and begin normalized production, Norwegian himself writes in the interim report.
In other words: Norwegian is losing flight altitude due to a mountain of debt and COVID-19 has caused engines to cheat. It is not an obvious choice if you want a good night’s sleep.
P.S! What do you mean? Will the state save Norwegian or do you think the company will go bankrupt? Write your review in a reader letter!
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