British Airways owner IAG has acquired 4.6% of Norwegian Air Shuttle and said it would use this position to initiate talks about a possible takeover bid
The Anglo-Iberian group considers Norwegian to an "attractive investment" and said that talks have not yet taken place and no decision has been made about a possible takeover at the moment.
took off on the Oslo Stock Exchange after the announcement, rising 20.8%.
The airline, which was trading at a market value of roughly $3bn, including its substantial debts, carried out a 1.3bn-crowns ($168m) equity raise last month, with a further 0.2bn crowns to follow in May, in order to gain some breathing room on its bond covenants.
IAG shares, like several other travel and tourism stocks, had lost ground since Tuesday afternoon due to the geopolitical tensions and the rebound in oil prices. While IAG had fallen around 5%, other airlines such as Air France-KLM and Lufthansa were down 36% and 15% respectively.
But on Thursday, EasyJet spiked up 2%, Ryanair 1.7% and Wizz Air 3% after IAG confirmed its position with Norwegian.
Analyst Alex Paterson at Investec said: "In our view, IAG should be looking to expand its long haul low cost airline, Level, and acquiring Norwegian would expedite that. It would bring in 144 aircraft, an $8bn aircraft orderbook and slots at Gatwick Airport, as well as taking out a competitor."
He said he was "slightly surprised at the timing" of the announcement for a number of reasons, including Norwegian being highly leveraged with net debt/EBITDA of around 23.6x for FY18 and 13.4x for FY19e.
"Second, Norwegian only has 25% of fuel requirements hedged and therefore the rising oil price
will cause downgrades, pushing the stock lower. And third, Norwegian brings with it Norwegian/European short haul business and plans to expand into South America from Argentina, which, if successful, IAG would no doubt withdraw from. Norwegian is around one fifth of the size of IAG and so would be a perfectly manageable transaction."
The analyst said a sale of Alitalia to a consortium including AFKLM or Lufthansa was perhaps pressurising IAG into making a land-grab for other assets.
"IAG is now giving credibility to Norwegian, which the company lacked before, and this may allow Norwegian to make further equity issues at a much higher price," he added.