Norwegian shares jump as plane deal and increased earnings reduce financial pressure

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Stock in Norwegian Air (Norwegian) soared by as much as 23% as the Scandinavian airline not only announced a Q3 net income of NOK1.67 billion, up from a previously forecast NOK 1.47 billion, but also announced a leasing deal to offload 27 new Airbus jets it is committed to purchasing.

Norwegian has raised its 2019 savings goal and outlined plans to cut capacity while increasing operating profit by NOK4 billion over two years. The carrier has also finalized a joint venture deal with China Construction Bank where the latter will take a 70% stake in a new leasing company which will purchase the 27 Airbus A320neo jets Norwegian is committed to buying between 2020 and 2023. Norwegian will look to transfer additional planes to the leasing joint venture, while these 27 aircraft will save US$1.5 billion in capital expenditure, helping to reduce its NOK61.7 billion debt.

“This company is pulling out all the stops to get better,” said Bernstein analyst Daniel Roeska, who recently warned that Norwegian was approaching a key debt default threshold. “With a potential gain of up to US$10 million per aircraft, it could remove some of the pressure on the equity covenant,” Roeska said in a note to clients according to Reuters news agency.  The carrier has cut its spending guidance by US$200 million this year and has raised it by US$100 million for 2020 as it adjusts to the grounding of the 737 MAX, which it expects will return to service in March at the earliest, according to Chief Executive Geir Karlsen.

Full-year cost cuts will amount to NOK2.3 billion, an improvement on the NOK2 billion predicted. Norwegian has also narrowed its operating profit goal to between NOK6.1 and NOK6.5 billion from NOK6-7 billion in earnings before interest, taxes, depreciation, amortization and restructuring. (US$1.00 = NOK9.13 at time of publication.)

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