Delayed aircraft orders add to Norwegian woes

Pádraig Hoare and Richard Weiss

Low-cost, long-haul airline Norwegian Air’s woes have deepened, with it being forced to shelve flights between Europe and Canada until next year following a delay in delivery of new Boeing 737 aircraft.

Shares in Norwegian, which last week announced a major scaling back of its Irish flights to the US East Coast, including the suspension in the winter months of its first ever transatlantic flights from Cork to Providence in Rhode Island — fell 1.9%.

It postponed its Canadian flights after delivery delays afflicting Boeing 737 Max narrow-body jets left too little time to market the planned routes.

Services will not now begin until spring 2019 following a slippage of about four weeks in the handover of two 737s, Norwegian chief executive Bjorn Kjos said.

Ticket sales had been authorised to start last month with flights due from July 23, according to the Canadian Transportation Agency. “We got a slight delay, not much, but it gave us a month shorter pre-sale period,” Mr Kjos said, adding the hitch stems from issues with 737 engines made by the CFM International venture of General Electric and France’s Safran.

It has been a difficult year for Norwegian, which said it was suspending its year-round routes such as Cork, Shannon, and Edinburgh to Providence in Rhode Island for the winter months, instead concentrating on the March to October schedule for 2019.

The airline said last month it would post larger-than-expected losses for the current quarter, and that it had raised €136.8m in a share sale to help fund its expansion and cope with higher fuel costs. The airline has undertaken an ambitious expansion plan, buying over 200 new fuel-efficient jets.

However, investors have voiced concerns that its drive to put more passengers on more planes is pushing up costs quickly without producing higher returns.

Norwegian was also affected by snags with 737 handovers last summer. The carrier currently has six 737 Max planes in its fleet and is due to get another 12 this year, none of which have so far been delivered.

Norwegian’s first domestic flights in Argentina, with which the carrier aims to establish a bridgehead for wider Latin American services, may now be timed for the start of the high season in October instead of August as initially planned, Mr Kjos said, with a sales system to be established next month.

Davy analyst Ross Harvey, who said last week Norwegian’s business model could only work if it lowered costs in the second half of the year, said the latest delay could actually work in the airline’s favour.

“In terms of the 737 Canada delays, I wouldn’t automatically consider the news an outright negative. Norwegian is virtually doubling its long-haul capacity in 2018 and given the many teething issues and upfront costs associated with such expansion, this may free up some management bandwidth to focus on the core business and the expansion into domestic Argentinian capacity,” he said.

Meanwhile, Scandinavian airline SAS said it would strengthen its fleet by adding 50 Airbus A320neo aircraft to be used on its short and medium-haul flights.

The airline said it would buy 35 planes at a cost of $4bn (€3.24bn) and lease the other 15.

Additional reporting: Bloomberg


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