Shares in the Oslo-listed company tumbled 10% on the announcement, compounding falls last week when British Airways-owner IAG announced it was walking away from a potential takeover and would be selling its 4.61% stake.
Norwegian said on Tuesday that two separate offers tabled by IAG had “undervalued the company and its prospects” but the rights issue would provide “financial flexibility” and support a shift in focus from growth to profitability.
Chief executive Bjorn Kjos added: “Norwegian has been through a period of significant growth. Focus going forward will increasingly be on cost savings and capex reductions. We will now get in place a strengthened balance sheet that supports the further development of the company.
“With a strength balance sheet, the organisation can now devote its attention to the further development of the company.”
Last year, the airline – which operates 500 routes to 150 destinations – reported annual revenues of 40.3bn kroner and an underlying loss of 2.2bn kroner.
Analysts at RBC Capital Markets said: “After a 10% operating loss margin in 2018, the present business model looks unsustainable, so potential for a change in focus to profits/cash generation seems to the tone of Norwegian’s likely changes ahead.”
But they also warned: “Airlines occasionally face unexpected, cash-draining macro-geopolitical events – and we note that previous airline history includes loss-making airlines that have absorbed new equity on the promise of profit improvement that was then not delivered.
“Thus today’s news likely does not deliver a 100% probability that Norwegian will not succumb to an industry shake-out, unless it can generate a fast profit turnaround and rebuild its balance sheet.”
Measures to reduce capital expenditure include aircraft divestment and delaying deliveries of new planes, while a wide-ranging cost-cutting programme is estimated to reduce costs by a minimum of 2bn kroner in 2019.
The rights issue is fully underwritten by Kjos and chairman Bjorn Halvor Kise, who are the company’s largest shareholders, along with other investors. An EGM will held on 19 February for the rights issue to be approved.
Sources: NC, HL & BBC News