Posted on: 27 October 2019 by Glenn Sands
Norwegian Air Shuttle has revealed that it has reached a deal with China Leasing International Corporation (CLIC) for an initial 27 Airbus narrowbodies, so giving the Oslo-based LCC group financial breathing toom while it pursues a restructuring programme. The announcement followed a long protracted effort to form a joint leasing venture to allow Norwegian to divest part or all of its Airbus order book.
“We finally got an agreement on this joint venture,” said Norwegian acting CEO and CFO Geir Karlsen. The joint venture with CLIC will contribute “significantly” to reducing the company’s current and future capital expenditure, he stated, and “in one of many important initiatives that need to be realised to deliver a strategy of moving from growth to profitability.”
The new arrangement calls for CLIC, a 100% owned subsidiary of China Construction Bank Corporation, to become the majority owner of the joint venture with a 70% share, while Norwegian, is owned by the Irish leasing subsidiary Arctic Aviation Assets, which holds the rest. The new company, which will be based in Ireland will purchase the aircraft from Norwegian upon delivery. CLIC will provide the necessary financing for the aircraft as part of the joint venture.
According to ainonline.com, during a third-quarter earnings presentation with analysts, Karlsen confirmed the leasing joint venture will launch with just 27 A320neo aircraft—scheduled for delivery from 2020 to 2023— though he indicated Norwegian might sell more units into the new company. “I think this is a start of a long-lasting strategic relationship with CCB,” he said. “We created a vehicle that gives us flexibility. We can even lease aircraft from this company to Norwegian, which is not Plan A but it gives us flexibility.” At the end of September, Airbus held unfulfilled firm orders from Norwegian for 58 A320neo and 30 A321neo jets, according to the OEM’s latest orders and deliveries overview. Norwegian placed the order with Airbus in 2012 as part of a $21 billion spending spree on 222 new aircraft that also consisted of an agreement with Boeing to buy 122 737 Max jets. Norwegian operates only Boeing aircraft, a mix of 787s and 737s.
According to Karlsen, Norwegian will make a profit on each of the aircraft it will sell to the new venture. Both partners will carry marketing responsibility and jointly place the aircraft in the market. “The aircraft could go to the Chinese market but also to the international market,” he said.
The deal for the 27 aircraft will reduce Norwegian’s committed capital expenditure by approximately $1.5 billion and adds to parallel efforts to raise cash, including selling some of its 737NGs. Earlier his month, it sold five examples to China Aircraft Leasing Group Holdings Limited.
Norwegian has committed to a cautious approach to selling off more 737s due to the Max grounding, Karlsen said. “Ideally, we would like to sell more NGs but we have to be careful with the Max situation,” he said. Norwegian has not incorporated its 18 grounded 737 Max 8s in its winter schedule and does expect the aircraft to return to service in late March 2020 “at the earliest.” The grounding of its Max fleet has cost the airline 800 million Norwegian kroner ($87 million) so far, a figure expected to increase to NOK1 billion for the full financial year.