A Boeing 737-800 aircraft, operated by Norwegian Air Shuttle AS, passes a Ryanair Holdings Plc aircraft. (Bloomberg/File)
Norwegian Air Shuttle ASA took pains to reassure investors about the solidity of its cash position and plans to sell aircraft and cut costs as disruptions in the debt-laden budget carrier’s long-haul flights add to difficulties during the traditionally slow winter season.
“To meet the competitive environment in a period with seasonally lower demand in Europe, the company has made several changes to its route portfolio as well as adjusted its capacity,” Norwegian said in a statement Monday. “These measures should improve the financial performance from the start of 2019.”
A previously-announced plan to cut costs will save at least 2 billion kroner ($230 million) next year, while “significant progress” is being made in efforts to sell five Airbus SE aircraft, the carrier said. In a separate statement, spokesman Philip Allport said the liquidity position is “satisfactory” and Norwegian is attracting new passengers every month.
Click here to read: Norwegian Air to Sell Five Jets to Shore Up Stretched Finances
Winter months are a critical time for European carriers as travel slows. Rising fuel prices, persistent engine issues, and delivery delays on new planes are also heaping pressure on Norwegian Air’s strategy of offering heavily discounted fares. Adding to these woes, some of the company’s flights were grounded last week due to chaos at Gatwick Airport sparked by drones spotted around the runway that led to a prolonged shutdown of operations at the hub.
“It could be a very tough winter and first quarter,” Hans Jorgen Elnaes, an aviation analyst at Winair AS, said by phone. “2019 will be a year of consolidation, with the focus on profit more than expansion. If there’s a need to issue more shares, the company will do it.”
Norwegian Air is nearly done using a leased Airbus A380 plane on its New York route to repatriate all its customers stranded during the Gatwick shutdown, Allport said, adding that it’s too early to put a figure on the financial cost of the operation.
Although there will be costs involved, Elnaes said the airline won’t be liable to pay the customers, while buoyant demand for aircraft means the company should be able to strike a good deal for part of its fleet.
Norwegian Air must have a book equity value higher than 1.5 billion kroner and more than 500 million kroner of liquidity to comply with bond covenants, according to a company presentation. There’s no financial covenant on a 1 billion-kroner revolving credit facility agreed with bank lender DNB ASA.
Norwegian Air Chief Financial Officer Geir Karlsen said in November that the carrier would idle planes and trim capacity, deepen a cost-cutting program, and boost hedging measures. It sold six Boeing Co. 737s in August and two in October, and then unveiled the plan to offload five Airbus A320s.
The airline was also affected by groundings of Boeing Co.’s 787 jetliners for engine repairs and said on Monday it has reached a deal with engine manufacturer Rolls-Royce “which will have a positive effect from the first quarter of 2019.”
The Nordic company, which has rejected takeover approaches from British Airways owner IAG SA and also attracted interest from Deutsche Lufthansa AG, has been working to create a fleet joint venture with an unnamed partner that would take over cash obligations on its mammoth aircraft order book.