Norwegian Air Shuttle remains fully committed to delivering on its long-term growth strategy and it believes it has succeeded in developing long-haul low-cost services, even though its performance has suffered from blade durability problems in the Rolls-Royce Trent 1000s that power the Oslo-based LCC's Boeing 787 fleet. “The long-haul business would have been very good if it weren't for the engine problems that we encountered. It put a lot of strain on us and it cost us a lot of money,” Norwegian founder and CEO Bjørn Kjos said during the company’s third-quarter earnings call with investment analysts Thursday.
The Trent 1000 issue forced the airline to wet lease alternative capacity, which Kjos said has proved “very damaging” to the business. “You get [expletive] aircraft, but you did not hear me say that,” he asserted. On-time performance dropped dramatically and led to NOK1 billion ($120 million) in costs for compensating passengers under EU passenger rights rules. “This is NOK1 billion more than what we expect to get back in compensation payments from Rolls,” Kjos said.
Since the Trent 1000 problems arose, Kjos has insisted that Rolls and Boeing must properly compensate the airline, arguing that Norwegian did not build the engines or the aircraft.
Norwegian and Roll-Royce agreed the British engine manufacturer would replace the troubled Trent 1000 engines on the airline’s older 787s with new powerplants, though the total amount of the compensation remains undefined. “This will depend on the agreement and how long the problems will last,” said Kjos. “ [Rolls] has a goal on having these engine problems fixed by the end of this year, but we anticipate it may take longer. In our company we now anticipate it will be January and February.”
CFO Geir Karlsen said the engine problems have also hit the airline's cargo revenues. “If we did not have to take all these wet leases due to the engine problems we would have seen even a bigger increase in cargo sales,” he noted. Cargo revenue rose 97 percent to NOK177 million ($21.3 million) in the third quarter from NOK90 million ($10.8 million) during the same period a year ago.
Norwegian improved its financial performance in the three months ending September 30. Net profit grew 18 percent year-over-year to NOK1.3 billion ($156 million) and revenue increased by 33 percent to NOK13.4 billion ($1.6 billion) on a 33 percent hike in ASKs. The company also reported a profit for the first nine months, reversing last year’s loss for the period.
To address its unsustainable level of debt, Norwegian is proceeding with plans to sell an interest in Irish leasing arm Arctic Aviation Assets and up to 144 aircraft. Options include a joint venture. “We are in advanced discussions,” according to Kjos.
“We are obviously looking for a partner that has significant capacity in order to contribute with capital, not only to invest equity and but also to support the financing of the aircraft,” Karlsen said.
The company sold two Boeing 737NGs on Wednesday, after only six weeks of talks. “The market for selling these aircraft is pretty good right now,” said Kjos. “We’re looking for smaller companies that can buy aircraft and are willing to pay a bit more.”