Norwegian Air Is Selling 5 A320neos to Help Pay off Debt
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Low-cost carrier Norwegian Air has reached an agreement to sell five of its Airbus A320neo aircraft to help pay off some of its debt and strengthen its financial situation.
The airline said Friday that the five narrowbody aircraft are currently leased out under the airline’s leasing arm, Arctic Aviation Assets, and not operated by Norwegian. Delivery of the aircraft will take place in late 2018.
“Sale proceeds will be used to repay debt and to increase the Company’s liquidity,” Norwegian said in a statement to the Oslo Stock Exchange. After debt repayment, the sale is expected to increase the budget airline’s liquidity by $62 million USD.
Norwegian CEO Bjorn Kjos said earlier this year that the airline was looking to divest up to 140 aircraft it has on order to its leasing operation, Arctic Aviation Assets. Meanwhile, the airline has inked orders for 210 new aircraft from both Boeing and Airbus through 2020, Reuters reports.
“It’s always been the intention to divest some of the aircraft,” Kjos told Flight Global in April, noting that some of the planes transferred to the leasing operation could be leased back to Norwegian at some point.
Norwegian has been the fastest growing low-cost carrier to date. However, amid weaker-than-expected earnings in the third quarter of 2018, the budget airline said it would slow its expansion in the near future due to current forces in the aviation market.
“Going forward the growth will slow down, and we will begin to reap the large investments we have made over the years,” Kjos said in a statement on the airline’s earnings report. “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.”
Industry experts have noted the weak earnings and flagging growth as warning signs that Norwegian might be on the brink of total shutdown.
Airline industry analyst Robert Mann told TPG there are “questions on the viability of the Norwegian model.” The long-haul low-cost business model is tough because “the benefits of low cost evaporate on long-haul routes,” Mann explained, adding that low-cost carriers’ business models require them to turn around planes in a flash between flights. “When they fly internationally, the ability to recover time between flights shrinks,” he added, noting that international clearance issues, customs, security protocols and longer fueling all delay the process.
Smelling blood in the water, larger airline groups like IAG, which owns British Airways and other carriers, have attempted to bid on a buyout of the Scandinavian carrier. IAG made three attempts to buy Norwegian earlier this year, all of which failed.
More recently, Ryanair CEO Michael O’Leary said that it would be “inevitable” that faltering low-cost airlines would close operations in the next several months.
“We think it’s certain,” O’Leary said. “There will be more and larger failures this winter.” Then, in a direct swipe at Norwegian, O’Leary added, “Our focus will be on one of the two major Scandinavian airlines. We think one or the other of those are the most likely to fail this winter.”