BA owner IAG says deal with Norwegian Air won't fly leaving its rival facing cash crunch

Norwegian is a pioneer in low cost transatlantic travel, but it wouldn't accept a low cost deal and now has no margin for error

Grounded? BA owner IAG has said it won't now do a deal with Norwegian Air (Simon Calder)

There'll be no mile high club for British Airways owner International Airlines Group and Norwegian Air.

The two have been batting eyelids at each other across the aisle for a while now, but IAG now says there’ll be no deal.

The company had so fancied its transatlantic flying partner that it went as far as buying a whole bunch of shares in addition to the drinks when the trolley came around.

It isn’t hard to see why IAG’s deal making boss Willie Walsh - his portfolio also includes Aer Lingus and Iberian - was keen to take it beyond that.

Norwegian has been shaking things up by doing something its low cost rivals have threatened but never quite managed to pull off: taking the formula transatlantic.

You could easily pay more to take the train to Liverpool from London than flying from, say, Cork to Boston on the cheapest fare offered by the carrier, although you’d have to work a bit to get that.

Norwegian’s success has been such that it has started to look a lot sexier than BA, which was once the transatlantic boss among non US carriers but lost its crown last year.

That was when figures emerged showing that over the 12 months to July 2018, Norwegian shuttled 1.67m passengers across the pond. BA managed 1.63m. IAG unveiled a new brand and business in Level with the aim of competing. But in business if you can’t beat them its often easier to buy them.

The problem? Norwegian’s hard charging CEO Bjorn Kjos wasn’t minded to let his baby walk down the aisle for a sufficiently low cost price at a time when Walsh’s British business is facing a very uncertain future courtesy of the no deal Brexit our lunatic politicians are pushing us towards. After sweetening an initial proposal, Walsh has decided he's done.

Could Kjos come to regret failing to consummate a deal?

IAG’s withdrawal sent Norwegian shares into free fall and analysts have started to speculate about what it might have to do in the absence of a parachute. It’s facing the sort of capital crunch that fast growing businesses often encounter, with the bonds trading for cents on the Euro.

Over capacity has been squeezing fares across the industry, which has been hurting even the industry’s biggest guns. Witness Ryanair’s recent profit warning.

Kjos has said his strategy remains unchanged. He talks a good game.

But he’s already had to slash costs, refinance planes, close routes and bases.

IAG says it will sell its shares and its stake coming on to the market will keep Norwegian's price low, and make it harder for Kjos to issue new shares to raise cash. With his margins getting squeezed he now has no margin for error.