Wednesday 20 November 2019

Norwegian misses target but shares soar amid China talks

Credit: Norwegian Air
Credit: Norwegian Air
John Mulligan

John Mulligan

Soaring fuel costs and a depreciating krone against the dollar saw Scandinavian carrier Norwegian make less money in the third quarter than analysts had anticipated.

The low-cost carrier posted earnings before interest, tax, depreciation and amortisation (ebitda) of 1.86bn krone (€195.6m) in the period, with CEO Bjorn Kjos conceding that the aviation sector is challenged.

Although the profit missed expectations, it was still 13pc higher than in the third quarter last year.

Shares in the carrier soared more than 18pc, however, after news agency Bloomberg reported that Norwegian is engaged in talks with a Chinese leasing firm and other parties with a view to creating a joint venture that would take over cash obligations on Norwegian's large jet order book. That would see Norwegian receive a $1bn cash injection, giving its balance sheet a much-needed boost. The deal would cover a total of about 123 Airbus and Boeing jets the airline either has on order or which it has taken delivery of.

It won't replace Norwegian's existing leasing company, according to Mr Kjos.

The airline would have first right of refusal to lease any new planes, after which the venture would be allowed to find other customers, providing added operational flexibility to Norwegian.

Mr Kjos said it was important that the airline continues to streamline operations and reduce costs. Revenue of 13.3bn krone (€1.4bn), met expectations. Investors also continue to pin hopes on the possibility of the airline being bought out.

But despite yesterday's share surge, the stock is still trading well below levels it hit in April when Aer Lingus owner IAG revealed it had acquired a 4.6pc stake in Norwegian.

IAG CEO Willie Walsh said the group would be interested in making an outright bid, but talks have not progressed.

Mr Walsh told the Irish Independent in August that IAG would wait at most another year to seal a deal.

Norwegian has tried to develop a sustainable, profitable low-cost transatlantic business, but high fuel costs and its largely unhedged position could derail the already difficult proposition.

But Mr Kjos has insisted that once Norwegian's high capital expenditure costs related to aircraft acquisitions slows, the group will see its plan succeed.

"However, there is no doubt that tough competition, high oil prices and a strong dollar will affect the entire aviation industry, making it even more important to further streamline our operations and continue to reduce costs," he said.

Norwegian carried 10.9 million passengers in the third quarter, 11pc higher year-on-year as capacity rose 33pc. It will boost capacity by 40pc this current year.

Its unit costs excluding fuel fell 10pc in the third quarter on a reported basis and 12pc on a constant currency basis.

But including fuel, unit costs rose 1pc on a reported basis and fell just 2pc on a constant currency basis.

Norwegian operates flights from Ireland to Newburgh's Steward Airport in New York, and Providence in Rhode Island. Next summer, it's starting flights from Dublin to Hamilton Toronto airport.

It's been selling some aircraft it ordered, including eight Boeing 737-800s offloaded in the third quarter that are due for delivery this year and next.

Irish Independent

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