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Delivering so much more than airline financials, Ishka’s exclusive Airline Credit Profiles integratesa wealth of valuable data sources with indispensible analysis and commentary, providing theultimate airline analysis resource.

Each Airline Credit Profile is delivered in a concise, easy-to-read report format and updatedevery six months, or immediately following a major event.

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TheIshka View Financials CompetitionMacroeconomic

IndicatorsYieldsTraffic Growth(RPKs)

Each Ishka Airline Credit Profile includes the Ishka Scorecard and The Ishka View, plus the latest analysis of an airline’s:

Financial health and performance

Current fleet composition and delivery profile

Route network performance

Geopolitical risk review

Cape Town Convention coverage

Management and shareholder structure and support

2018 Airline Profile Norwegian

CONFIDENTIAL © Ishka Ltd 2018 Airline Profile

Country Alliance Membership

Business Model

Financials Traffic Growth (RPKs)

Yields Macroeconomic Indicators Competition

Ishka Credit Score

Source: Ishka calculations, Airline financial statements, Bloomberg, Thomson Reuters

Ishka Scorecard

FY 2016 FY 2017 FY 2018 Est FY 2019 Est Liquidity B+ BB B B Leverage C C C C Gearing C C C C EBITDAR Margin BBB BB BBB- BBB Avg. Age AA- AA- N/A N/A Load Factors A+ A+ AA- AA-


Note: Scores for individual financial and operational indicators are added together using a weighted-sum technique to derive one single score, Ishka Credit Score

B- B- B- B-

0.0

2.0

4.0

6.0

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A

BBB

BB

B

CCC

C



Cape Town Convention Coverage

The majority of the countries that Norwegian flies to have ratified or acceded to the Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Aircraft Equipment. As of Q1 2018, less than 1.5%

and the continent. Argentina is yet to ratify the aircraft equipment protocol.

Management Review

Norwegian continues to be led by one of its founding partners, Bjorn Kjos, who has been its CEO since 2002. The Chairman of Board is Bjørn H. Kise

Together, the CEO and Chairman own a 26.8% stake in Norwegian through their investment holding company, HBK Holding. In September 2017, together they bought an additional 2.24% stake in the airline for a total sum of US$24.4 million.

The carrier appointed Geir Karlsen as its CFO in January 2018.

Shareholding Register/Group Structure

HBK Invest AS or HBK Holding is the single largest shareholder in Norwegian. As mentioned earlier, HBK Holding is

owned a 26.8% stake in the Norwegian carrier. This overlap between ownership and management can be viewed

From an operational point of view, Norwegian is increasingly targeting the long-haul segment using a fleet of Boeing 787 and 737MAX aircraft. While the airline plans to maintain its short-haul market within Europe, most of the new growth will be driven by new long-haul routes to North America, Asia, Latin America and Africa. The carrier generates majority of its revenues from outside the Nordic region.

Over the years, Norwegian has slowly transformed into a diversified airline group consisting of core airline operations and ancillary businesses to support its passenger transportation business. It also has a separate leasing business, Arctic Aviation Asset Ltd, which will soon be leasing out aircraft to other airlines. Norwegian also owns a portion of an online financial institution in Norway that handles its affiliated credit card.



Financial Summary for Norwegian Performance Review

Summary Financials for Yr Ending 31-Dec-16 31-Dec-17Income Statement 2017 has been a very challenging year

for Norwegian in terms of financial performance. The airline returned to the red during the year and even most of its key financial metrics have deteriorated substantially. Nevertheless, there were some positives particularly from an operational stand-point.

Traffic growth over the years has been extremely robust and that trend continued even in 2017.

The liquidity position improved to some extent, although it has not reached a

.

Capacity utilisation remains strong; however, as a result of the imbalance between revenues and costs even a load factor of about 88% falls short.

s balance sheet has gradually become more strained and is now at an extremely weak level.

Operational profitability remains volatile and while total revenue growth has

traffic growth due to weaker yields.

The cost base is not as low as it should be. It is not sustainable in the current revenue environment. While yields & unit revenues were down significantly in 2017, unit costs went up, mainly as average fuel prices increased and the airline rapidly expanded its 787 operations on intercontinental routes. Consequently, the RASK-CASK margin turned negative during the year.

Total Revenues USDm 3,358 3,989

EBITDAR margin 20.7% 12.8% Net profit margin 4.4% -1.0%Balance SheetBalance sheet debt USDm 3,025 3,390 Adjusted net debt USDm 5,656 6,880 Adjusted net debt/EBITDAR 8.2x 13.5x Adjusted net debt/Equity 10.8x 13.0x Cash & marketable securities (liquidity) as % of total revenues 8.9% 13.1%

No. of months liquidity to cover EBITDAR expenses & aircraft rental

1.19 months

1.57 months

Operational & Per-unit Data RPKs 50,798 63,320

ASKs 57,910 72,341

Load Factor 87.7% 87.5% Breakeven load factor 83.5% 91.3% Passenger Revenue per RPK (Pax Yield) USD cents 5.3523 5.0313

RASK (Unit Revenues) USD cents 5.7987 5.5137 CASK (Unit Cost) USD cents 5.5219 5.7534 RASK-CASK Margin USD cents 0.2767 -0.2397

29,300 33,150 Revenue per Passenger USD 93 96

Source: Ishka calculations & Airline financial statements. Note: 2017 numbers have been sourced from preliminary abridged financial statements

Impact Intelligence

2017 has been a relatively challenging year for Norwegian in terms of financial performance. expansion is pushing up costs at a higher rate while yields remain under stress on account of overcapacity, aggressive pricing and intense relating to pilot and plane shortages that costed the company nearly a billion kroner (US$129 million). To avoid the repeat of the same situation, the airline ramped up pilot recruitments which further added costs. In addition, as fuel prices started to rise in 2017, the airline has been struggling to maintain its RASK-CASK margins. On the positive side,

and capacity utilisation have been fairly healthy in 2017 and its liquidity position, too, improved over the period. All in all, while Norwegian is clearly struggling to effectively execute one of the fastest growth plans the industry has seen, to be fair, the carrier has also been impacted by external incidents which were beyond its control.



Following the weaker operating results i -1 EETCs ratings. Class A was downgraded from Baa3 to Ba1 and Class B from Ba3 to B1. The rating outlook was stable.

ed regulatory permissions to fly transatlantic routes which allow the airline to expand its operations from London Gatwick Airport and domestically within Argentina. However, the uncertainty surrounding Brexit and whether the UK will retain its EU traffic rights makes this regulatory clearance less impactful. In January 2018, Norwegian Air Argentina also received regulatory clearance for an Argentinian AOC. Norwegian has established a separate Argentinian unit which is expected to start domestic operations in the summer of 2018.

Norwegian recently struck a partnership deal with easyJet allowing flyers to connect a Norwegian long-haul flight with an easyJet short-haul flight in one single booking this is the first such alliance partnership between LCCs.

Fleet Analysis

Aircraft Type Current Fleet Avg. Age (Yrs) On Order % Leased Other Lessors

A320-200neo - - 58 - - A321-200neoLR - - 30 - - 737-800 116 4.3 2 100% BBAM, BOC, DAE, DVB, FPG Amentum,

ICBC, JSA, Macquarie, SMBC, and captive lessor Arctic Aviation Asset

(AAA) 737-8 6 0.7 104 100% 787-8 8 4.2 - 100% AerCap, DP Aircraft Ireland, AAA 787-9 16 1.0 22 100% DVB, AerCap, Avolon, AAA Overall Total 146 216

Norwegian has rapidly built its fleet in the last 10 years around the 737-800 and the 787, the result being a modern and fuel-efficient fleet with an average age of 3.6 years. Long-haul and medium-haul transatlantic (east coast) services are mainly served by the 787s and the newly delivered 737MAX 8s. Expansion into Argentina, where Norwegian has received concessions to operate 153 routes, will also absorb some of the fleet.

2018 Delivery Profile

Type Approx No. Value Remarks A320neo 4 $200m For lease to HK Express (via leasing subsidiary Arctic Aviation)A321LR - First 8 anticipated in 2019 737-800 2 $93m Last two 737-800s on order 737MAX 8 12 $600m

Hartford CT, Providence RI, and Stewart NY. 787-9 11 $1,593m Will take fleet from 21 at end of 2017 to 32 at end of 2018 Total 29 $2,486m Note: As of October 2017



Route Network Analysis

Source: OAG and Ishka Calculations. Indicator of bubble size/market size - The largest bubbles represent around 650,000 seats, medium-sized bubbles are around 300,000 seats and the smaller ones are less than 50,000 seats. Seat counts are for the quarter - Q1 2018.

Norwegian is one of the fastest growing airlines in the world. In 2017, the carrier added around 32 aircraft to its fleet including a number of widebody aircraft as it ramps up its intercontinental long-haul operations. The chart above

titor on majority of the key market pairs. The Norwegian carrier has managed to grab market share on all the key market pairs during the past year. This is not surprising considering Norwegian has been ramping up production while SAS is undergoing restructuring and optimisation of its network.

Norwegian has started flying on a number of new market pairs over the past year. And several of them are on the al, Barcelona

and Newark Liberty International, London Gatwick and Singapore, London Gatwick and Seattle-Tacoma International and New York Stewart International and Dublin. Norwegian was the sole operator on the Singapore, Seattle and New York Stewart routes while the Newark Liberty from Rome and Barcelona pairs are also served by United Airlines. Although, both carriers maintain a 50% share of capacity on the two routes.

Among the major city pairs that Norwegian stopped serving over the course of the past year, the majority were intra-EU routes. Most of these pairs were highly competitive and served by a number of other airlines. Norwegian was also among the smaller operators (less than 20% share) on the majority of these city pairs.



Norwegian continues to grow its fleet aggressively. This will require a capex investment of $2.1bn in 2018. A PDP facility for 50 A320neos, delivering to its Arctic Aviation leasing subsidiary, is also in place.

Norwegian is now working on their 2018 financings their long-term financing opportunities include export credit guaranteed financing, AFIC (guaranteed by syndicate), sale & leasebacks, commercial banks, EETC financing and private placements. Four of the 787-9s due in 2018 are being leased from Avolon and AerCap. Export Credit and AFIC are the likely financing facilities for the remaining 787s and 737MAXs in 2018. The 737MAX will be used on

ook for 70 A320neos, which are to be leased out other carriers. The first 12 are being delivered to HK Express, the first was delivered in late 2016. Four of the twelve are due to be delivered in 2018.

Country and Regional Risk

Scandinavia is a highly prosperous and efficient economic region. There is a high degree of penetration of air travel in the region which remains seasonal and highly cyclical. Despite that, air travel in the region (measured by number of passengers at Scandinavian airports) has grown by about 4.5% during 2016/17 in-line with historical average of 4% since 2000. From a macroeconomic perspective, the three Scandinavian countries have recorded reasonable GDP growth rates during 2017. As per the OECD, real GDP is estimated to increase by just over 2% in Denmark and

better economic performance.

Sweden is the fourth largest contributor of revenues for Norwegian. The country will introduce an aviation tax starting from April 2018 to make airlines operating in Sweden accountable for their carbon emissions. As per the proposal, flights to European destinations from Sweden will attract a tax of SEK80, longer flights outside of Europe will be taxed SEK280 and intercontinental flights originating out of Sweden will be charged the full tax of SEK430. Norway, too, implemented a similar tax reform during 2016. While the intent of the proposal is noble, it is highly likely to negatively

-line to some extent. The competitive environment remains tough and costs of running an airline from Scandinavia are high anyway. Either, airlines could struggle to fully pass on added costs thereby risking lower margins or if they pass on the added costs, they risk impacting demand due to higher ticket prices.

Overcapacity and the threat of terrorism-related incidents remain a major challenge for European airlines, however, the collapse of airberlin, Alitalia, VIM and Monarch Airlines within months of each other augurs well for the healthier airlines in the region - the failure of weaker carriers should help to consolidate some of the excess capacity. The impact of terrorism-related incidents seen during 2016 has diminished slightly in 2017 as a result traffic has been stronger compared to 2016 (8.2% y-o-y growth in 2017 compared to 4.6% in 2016).

The outcome of Brexit negotiations remains increasingly uncertain. It seems unlikely that the UK will stay a member of the EU Open Skies Agreement without a change in direction. The UK is an important market for Norwegian. The carrier has recently open up a UK-based subsidiary to counter the uncertainty associated with Brexit. While the prospect of a no-deal Brexit opens up the possibility of a major disruption to UK-EU air traffic, in reality any major disruption is highly unlikely - there will be some agreement in place by the time the UK exits the EU. Despite the overhang of uncertainties surrounding Brexit, there are signs of an a



There are some immensely concerning aspects

unsustainably high leverage and gearing levels and the relatively weak liquidity position,

EBITDAR level profitability has remained relatively robust over the years.

I -term ambitions - there is substantial potential in

However, in-order to reap the benefits in the future, the airline will need to take some difficult decisions in the short-term. Growth plans need to be revisited and re-aligned in-line with current market conditions there is simply too much cheap transatlantic capacity at present, and costs need to be cut even more.

The feeder deal with easyJet and the regulatory approval for NUK to operate transatlantic flights should provide a further boost to traffic growth, especially from & within the UK, which is a key market for the airline.

Young aircraft - -efficient aircraft are perfect for its business model. Although, there are question marks on the number of aircraft in the fleet and the rate at which it has inducted those aircraft.

Favourable demand conditions Thanks to a healthy Eurozone economy, air traffic growth to and from the continent has been very vigorous in 2017 and is likely to remain strong in 2018.

proposition has attracted a number of passengers which is evident from its impressive 11.4% average passenger growth during the past three years.

The two senior most officers are also, jointly, the single largest shareholder in Norwegian. This overlap can be viewed positively from the

personal monetary stake in the carrier.

While there is potential in the low-cost long-haul model, it still remains unproven. Some of the factors that have made the traditional low-cost model so successful, cannot be directly replicated

ability to successfully manage its short-haul and long-haul business in a way that feeds additional traffic into each other.

While Norwegian says it has financing in place for most of its 2018 deliveries, there are increasing concerns about its long-term financial health considering the already leveraged balance sheet. The airline still has a number of aircraft on order and considering its current financial strength, cost of financing is likely to remain high.

Despite Norwegian being innovative, there has been an aggressive response from the competition - nearly all major network carriers from either side of the Atlantic have either incorporated new low-cost carriers to serve the long-haul market or have offered no-frills ticket options on existing services, and the strong competition in the intra-EU market makes

-fare environment.

Fierce competition is likely to continue to compress yields in 2018, and with unit costs exerting upward pressure, financial health will remain under pressure.

Unsustainable balance between revenue and cost - A load factor of 88% is excellent by any

sufficient for Norwegian to post healthy financialresults. At revenue environment, Norwegian would need toensure its capacity utilisation is at least 91% justto break-even.

Currency fluctuation risks In 2017, around 17%

around 65% of its CASK was in US dollars.

Norwegian has a few contingent liabilities which are pending review from regulatory bodies. An unfavourable outcome could have material

financial metrics.

Get the exclusive Ishka View and Ishka ScorecardAt the heart of an Airline Credit Profile is the Ishka Scorecard and The Ishka View – our team’sexpert opinion on the airline’s key strengths versus its challenges.

Discover which airlines are on Ishka’s negative or amber watch and those demonstrating viableand exciting investment opportunities.

Actionable, calculated Ishka analysis utilising multiple,trusted data sources including Bloomberg, OAG and airline financial statements.


Financial Health& Performance

FleetComposition &Delivery Profile

Route NetworkPerformance

ManagementPerformance

Cape TownConvention

Coverage

Geo Risk

ShareholderStructure& Support

Scorecard

Th

e Ishka View

The Ishka View

I 2

Ishka Credit Score

Source: Ishka calculations & Airline financial statements

B+BB BB

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The exclusive credit score on an individual airline is generatedwith six critical measures at its core: liquidity, leverage, gearing,average fleet age, load factorsand EBITDAR margin.

I 2

Ishka Scorecard

FY 2016 FY 2017 Liquidity BB BBB- Leverage CCC B- Gearing B BB+ EBITDAR Margin BB+ BBB- Avg. Age BBB+ BBB+ Load Factors BBB BBB+

B+ BB

Source: Ishka calculations & Airline financial statements

The final credit score is under-pinned by expert analysis andcommentary from our team ofglobal analysts, taking intoconsideration a holistic view offinancials, management andshareholders, route network,fleet order book and the impactof recent events.


C shka Ltd 2018 Airline Profile


Business Model

nancials Traffic Growth (RPKs)


core

ions, Airline financial statements, Bloomberg, Thomson Reuters

d

FY 2016 FY 2017 FY 2018 Est FY 2019 Est B+ BB B B C C C C

C C C C BBB BB BBB- BBB

AA- AA- N/A N/A A+ A+ AA- AA-

ions, Airline financial statements, Bloomberg, Thomson Reuters

dual financial and operational indicators are added together using a weighted-sum technique to derive one single score,

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16:34 Page 2

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LessorsIncluding heads of risk, heads of origination, heads of remarketing / trading

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Ishka’s dedicated Airline Credit Profiles team includes:


Eddy PieniazekHead of Advisory

Eddy has supported thousands of aircrafttransactions during his 35+ year career,advising leaders of the world’s top aviation finance, investment and leasing companies,airlines and manufacturers. A respectedand valued influencer, Eddy was one ofthe original pioneers of today’s aircraft valuation and appraisal industry, developingthe industry’s first online valuation tool andassociated analytics, fulfilling the rigourand consistency demanded by investors.

Stuart FlayeSenior Consultant

Stuart has over 17 years’ experience withinthe aviation industry. Previously, Stuartwas technical director at Hong KongAviation Capital and responsible for thetechnical asset management of HKAC’sportfolio, drafting lease documentation,managing aircraft valuations and investorreporting, along with analysing trends inthe market. Prior to HKAC, Stuart spentseven years as senior analyst at Ascend.

Lucia Cebotaru Senior Analyst

Lucia is a highly skilled analyst with over adecade’s experience in both the financialand energy sectors, with previous postsincluding six years in aviation finance atDeutsche Bank in London. Lucia works onglobal consultancy projects conductingforward-looking analysis of industry trendsand analysing investment opportunities for clients.

Siddharth Narkhede Analyst

Siddharth has over seven years’ experiencein aviation research and analysis. He has a strong background in airline financialresearch and strategic analysis and haswritten many business and credit researchreports on airlines and other industries alike. Siddharth is an integral part of Ishka'sadvisory team responsible for developmentof customer-led analytical products andbespoke aviation consultancy projects.

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