Boeing Jet Grounding May Blow Norwegian Air Recovery Off Course
Norwegian Air said the grounding of its Boeing 737 MAX aircraft may last until the end of August and could scupper the carrier's plan to return to profitability this year.
Boeing's MAX aircraft have been grounded following the crash of a Lion Air plane in Indonesia last October and an Ethiopian Airlines jet last month, which together killed 346 people.
The MAX ban will likely raise Norwegian's 2019 costs by up to 500 million Norwegian crowns ($57.84 million), the company said, adding that its efforts to cut other operating expenses were moving at a faster-than-expected pace.
"Due to the uncertainty related to the MAX grounding, the company sees increased risk related to the target of a positive net profit in 2019," Norwegian said.
Norwegian will have to lease other aircraft to replace its 18 MAX planes as the peak summer season nears.
"There is a saying that you should hope for the best and plan for the worst, so we are planning to have (the MAX aircraft) on the ground throughout August," CEO Bjoern Kjos told Reuters.
Norwegian also reported a bigger year-on-year first-quarter loss on Thursday April 25 and sharply cut capital expenditures plans for this year and next, allowing it to save money and give time to improve operations, Kjos said.
The Oslo-listed airline has shaken up the long-haul market by offering cut-price trans-Atlantic fares, but its rapid expansion has left it with hefty losses and high debts.
The carrier, which has had to raise money from shareholders in recent months, said late on Wednesday April 24 that it had agreed with Boeing and Airbus to postpone more aircraft deliveries.
This will cut its planned 2019 capital expenditure by $300 million to $1.7 billion, while it now sees 2020 capex at $1.2 billion, half of its previous estimate.
Norwegian has now completed its programme to delay orders, Kjos said.
"We have come to a very good conclusion, or settlement, with the factories and that gives us headroom to actually concentrate on running an efficient operation over the next two years."
Quarterly Net Loss
The budget carrier posted a quarterly net loss of 1.49 billion Norwegian crowns ($172.4 million), versus a 46.2 million crowns loss a year earlier, while analysts in a Reuters poll on average had expected a loss of 1.65 billion crowns.
"Today's results were good enough for this company to continue flying in the near-term, but do not fully solve underlying structural issues," Bernstein said in a note.
Kjos declined to say whether Norwegian had come to an agreement with Boeing regarding compensation for the aircraft groundings.
"We try to manoeuvre through these difficult things for both Boeing and us in the best way possible," Kjos said. "The only thing I can say is that ... Boeing has a full understanding of the problems these groundings are causing us."
In February, Norwegian said it would prioritise earnings over growth, cutting a 2019 target for capacity increases to just 9% from 15%-20%. On Thursday April 25, it predicted capacity growth of 5%-10%.