Sunday 8 March 2020 3:43 pm

Norwegian under scrutiny amid concerns over carrier's debt pile

A number of hedge funds have increased their bets against Norwegian Air amid concerns that the low-cost carrier could follow Flybe into bankruptcy due to the slump in demand due to the coronavirus outbreak.

According to IHS Markit data obtained by the Sunday Telegraph, nearly 16 per cent of the airline’s stock is on loan to funds such as Arrowstreet Capital, a $106bn fund founded by Harvard academic John Campbell.

Read more: Flybe collapse: Virgin Atlantic refused to put more cash into beleaguered airline

The moves come after a number of analysts cut their ratings for Norwegian due to fears that the airline is particularly exposed due to its large debt pile.

Both Pareto Securities and ABG Sundal Coller cut ratings, saying that the firm was low on cash and likely to go back to shareholders to raise new equity.

Norwegian has been among the airlines worst hit by the coronavirus outbreak, with shares losing over two-thirds of their value since the outbreak worsened in the last two weeks.

On Friday the firm said it had sold over two thirds of its available seats for March, and added that it would waive flight change fees in a bit to encourage bookings.

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In a statement, the firm said: “Although current demand is affected by uncertainty people are still booking tickets, this is especially evident for travel in the near future.

“Norwegian is now working on optimising the route network accordingly and any subsequent changes will be announced as soon as they are ready”.

In the past two years, the carrier has raised equity three times to mitigate the decline in its share price, with investors spooked by the size of the airline’s debts.

Norwegian’s rapid expansion into the transatlantic space is the principle factor behind its debt, and the firm has subsequently switched strategy to focus instead on boosting profit by selling planes in its fleet.

Read more: Flybe collapse: Travel sector reacts as regional airline goes bankrupt

It has also been impacted by the grounding of the Boeing 737 Max after two fatal crashes a year ago, as its fleet contains 18 of the model.

Last week the firm suspended its 2020 earnings outlook and cut some transatlantic flights due to the outbreak.

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