Attempting to calm fears about its very future, the low-cost airline Norwegian has made several big announcements today to coincide with its third-quarter earnings report. One of the biggest headlines from the day is the news that Norwegian has at last hammered out a joint venture deal that covers the financing, ownership and leasing of its aircraft fleet.
It was revealed that the joint venture partner is China Leasing International Corporation – a 100 per cent owned subsidiary of China Construction Bank. CCBLI will be the majority partner in the joint venture, taking a 70 per cent stake and will initially help Norwegian purchase 27 Airbus A320neo aircraft that are set to be delivered between 2020 and 2023.
The airline estimates that the joint venture will reduce capital expenditure by around $1.5 billion based on the initial 27 aircraft involved in the deal.
In a separate deal, Norwegian also revealed that it has struck a deal with Aircraft Recycling International Limited – which is part of China Aircraft Leasing Group Holdings – to sell five of its Boeing 737-800 aircraft in a deal worth $50 million.
The aircraft will be divested over the next few months and the proceeds will be immediately put to use to repay debts.
Earnings expected to be lower than expected
While Norwegian wanted to bring some positivity to its third-quarter earnings report – with the acting chief executive, Geir Karlsen saying that the latest figures prove its “delivering on our strategy of moving from growth to profitability” – the figures weren’t all plain sailing.
For example, estimated full-year earnings for the year are now expected to be lower than originally forecast – down from a maximum of $769 million by around 7.5 per cent.
Norwegian said it was exposed to a number of risk factors, pointing out concerns of overcapacity in some markets, continuing concerns over liquidity, as well as fuel price and currency fluctuations. The airline also acknowledged that industrial action may also have an impact on financial performance – the company currently intends to make around 450 pilots and cabin crew redundant in Spain.
An update on the Boeing 737MAX
Norwegian currently has 18 Boeing 737MAX aircraft in its fleet – all of which remain grounded. Like other operators, it has also had to suspend taking delivery of any other 737MAX’s it has on order.
While Norwegian had originally hoped the aircraft would be recertified by now, the airline now doesn’t think it will take to the skies again until some point in the new year. Estimated costs associated with the 737MAX grounding have now gone up by 42 per cent to $110 million.
“Negative impacts include reduced revenue from cancellations and other disruptions as well as increased expenses from crew inefficiencies, increased fuel consumption and passenger compensation,” the report notes.
Norwegian has made much of its plans to go from a period of rapid growth to profitability and one of the ways it hopes to do this is through a massive company-wide cost-cutting programme that it has dubbed #Focus2019. Essentially, nothing is too sacred and every member of staff has been encouraged to get involved and come up with ideas to try and help the airline reduce its costs wherever possible.
As a result, Norwegian says #Focus2019 will have achieved a cost reduction of $252 million in just 12-months.
There were also quite a few bright spots – operating revenue and profits for the quarter are up, so too is the load factor. Although passenger numbers have slightly dipped, Norwegian points out that this is in line with cutting unprofitable routes.
For now, it looks like Norwegian is out of the woods.