With new CEO and secured funding, where does Norwegian go next?
On November 20, 2019, Norwegian Air Shuttle announced that the company finally found a replacement for its long-standing Chief Executive Officer and founder, Bjørn Kjos. The man to fill Kjos‘ shoes will be Jacob Schram, a former executive in companies such as Circle K, McDonalds and McKinsey. While experienced in various industries, including gas and food, Schram has no experience in aviation.
With a cumulative debt of $6.7 billion (NOK61.7 billion), according to Norwegian’s latest Q3 2019 report, the new CEO has some big decisions to make, amidst a very difficult environment for the airline, including the 737 MAX groundings and plaguing Rolls-Royce TRENT 1000 issues, which power the 787 Dreamliner – the two aircraft that are the backbone of Norwegian’s fleet.
Yet the skies seem to be getting clearer for the low-cost carrier. A record-breaking quarterly profit and closer than ever 737 MAX un-groundings, including the fact that the company has secured enough cash to operate for the rest of the year, might result in a comparatively great 2020.
“Now, my main focus will be to bring the company back to profitability and fortify the company’s position as a strong international player within the aviation industry,” noted Jacob Shram, who will begin his work starting January 1, 2020.
Norwegian’s strategy, called #Focus2019 has one clear goal – to stabilize the company after a period of massive growth, reduce costs and improve liquidity in order to sway liquidators away from closing down the airline. So far the plan has worked out – Year to Date (YTD) the company has saved $200 million (NOK1.84 billion), as it scaled down. In 2019 alone it sold off four Boeing 737s, with further agreements to sell 11 more in late-2019 and early-2020.
ARTICLE: Norwegian sells six Boeing 737s, shares to raise funds
At the same time, Norwegian’s debt has increased massively. The low-cost carrier ended 2018 with a net debt of $3.4 billion (NOK31.9 billion), while it finished Q3 2019 with a hole in its budget amounting to $6.7 billion, leaving little room for flexibility. So much so, that the airline established a joint venture (JV) with China Leasing International Corporation DAC, reducing Norwegian’s potential expenses by $1.5 billion, as the JV will take the financial responsibility of 27 Airbus A320neo aircraft on order, the company announced on October 24, 2019.
The press release included the word initially, meaning that potentially, the company will look to defer more of the deliveries to the JV, rather than taking financial responsibility itself through its leasing subsidiary, Arctic Aviation Assets DAC.
But the joint venture is not the only way for reducing costs – following the 737 MAX groundings, the low-cost carrier replaced the capacity gap with wet-leased aircraft, which proved to be costly. However, the measure was abruptly stopped as some routes were no longer commercially viable. For example, on August 13, 2019, Norwegian announced that it is cutting transatlantic flights from Ireland.
“Compounded by the global grounding of the 737 MAX and the continued uncertainty of its return to service, this has led us to make the difficult decision to discontinue all six routes from Dublin, Cork and Shannon to the US and Canada from 15 September 2019,” senior Vice president of Long-Haul Commercial at Norwegian, Matthew Wood, said.
ARTICLE: Norwegian ends transatlantic flights from Ireland; blames 737 MAX
In Q3 2019, the airline’s report highlighted the fact that its aircraft lease and depreciation costs increased by 10% to $174 million (NOK1.6 billion).
“Efficiency gains from adding new fuel-efficient aircraft to the fleet, increased sector length and several #Focus2019 initiatives to reduce fuel consumption are offset by negative impacts using wet-lease during the quarter.”
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