Norwegian has signed a new joint venture deal with China Leasing International Corporation which will significantly reduce Norwegian’s capital expenditure. The two companies will share ownership of 27 Airbus A320neos currently due to be delivered to Norwegian between 2020 and 2023.
Business Traveller reported earlier today on a massive new joint venture deal signed between Norwegian and China Leasing International Corporation. The agreement between the two parties relates to 27 Airbus A320neos currently due to be delivered to Norwegian between 2020 and 2023.
Specifically, China Leasing International Corporation will “finance, own and lease aircraft that Norwegian has on order”. It will own a 70% stake in the leasing venture, while Norwegian will own the remaining 30%.
In total, the deal will see Norwegian reduce its capital expenditure by more than $1.9 billion.
Why is Norwegian signing a deal like this?
Over the past few years, the airline has enjoyed a rapid period of growth to become one of the key players in the European low-cost air travel market. But some of the problems associated with such rapid growth do finally appear to have caught up with the airline.
Norwegian invested heavily in increasing the size of its fleet but overstretched itself in the process. Recently it has made a number of moves that signal a change in business strategy, away from expansion towards stability and profitability.
Back in August Norwegian sold its shares in Norwegian Finans Holding for $254 million. The company is a profitable financial services firm with a customer base of 1.6 million, so the sale of shares shows that Norwegian is currently prioritizing liquid cash.
Then, earlier this month, it was revealed that Norwegian had removed 5 Airbus A320 orders from its total order of 63. Although it is not clear what exactly happened to these orders, it is likely they were transferred to another buyer.
A couple of weeks later it was also revealed that Norwegian was planning to sell five Boeing 737-800s to China Aircraft Leasing, for a total of $50 million.
An ideal solution to Norwegian’s problem
As far back as September 2018, Norwegian made it clear that it wanted to offload its order of Airbus A320neos.
“We have 90 A320neos (60 A320neo and 30 321LR) from Airbus on order. The Airbus 320neos are for all practical purposes for sale. We have started a process where we will try to find a new home for those aircraft,” said Norwegian’s former CFO, Geir Karlsen.
As a result, it seems the new deal with China Leasing International Corporation is just what Norwegian needs to reduce its expenditure on aircraft it has deemed excess to requirements.
Norwegian’s current financial situation
Norwegian’s financial woes were clear to see in this year’s first-quarter results. The carrier reported a loss of $171 million in the first three months of 2019.
But Norwegian’s third-quarter results already appear to suggest that the change of strategy is working.
Today it posted its best-ever quarterly results with a pre-tax profit of $241 million. It’s probably too early to say if this is the beginning of long-term profitability, but it’s definitely a good sign.