Norwegian uses 737 crisis to wring fleet deal from Boeing

Bloomberg

Cash-strapped Norwegian Air Shuttle ASA secured a deal to delay deliveries of Boeing Co 737 Max jets, aided by the bargaining power granted by the model’s global grounding after two fatal crashes.
Boeing agreed to postpone the handover of 14 Max 8s due in 2020 and 2021, which together with an outline accord to restructure Airbus SE deliveries will reduce capital spending by $2.1 billion, Norwegian said ahead of first-quarter results.
The discount carrier has the greatest exposure in Europe to the crisis surrounding the 737 Max, with 18 planes currently idled. At the same time, it has been re-evaluating a mammoth order book amid industry overcapacity and falling prices, with the grounding presenting the company with an opportunity to revisit fleet requirements.
“We have had some productive meetings with Boeing where we have discussed how we can manoeuvre through the difficulties the Max situation is causing Norwegian,” Chief Executive Officer Bjorn Kjos said a statement.
He added that the company is still assessing the financial impact of the disruption.
Shares of Norwegian Air advanced as much as 5 percent and were trading 4.4 percent higher at 40.20 kroner in Oslo. The stock is still priced 60 percent lower for the year after tumbling in January when British Airways parent IAG SA dropped a takeover approach.
The delivery delays at Norwegian will open up slots for other Max customers after Chicago-based Boeing halted deliveries and slowed production after the Ethiopian Airlines crash on March 10 put the Max out of action. The manufacturer said that it’s working with customers to minimise the impact and bring the fleet back into service.
“We are in daily, multiple times a day conversations with our customers as well, and we regret the impact this has had to their operations,” CEO Dennis Muilenburg said on a conference call.
Norwegian was among the earliest adopters of the upgraded Max, using its extra range to launch services on Europe-US routes traditionally dominated by twin-aisle planes. But after the Ethiopia crash it has scrapped some flights and switched others to bigger jets, increasing costs and reducing competitiveness.
The crisis hit at a time when Norwegian could least afford disruption after being forced to raise fresh funds in a rights issue. The delivery deferrals will save $500 million in the first year and $1.6 billion in 2020.