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Thursday, June 13, 2024

Costs pile up for Norwegian Air

With its large fleet of now-grounded Boeing 737 MAX 8 aircraft, Norwegian Air suddenly faces highly uncertain operations and more financial concerns in the months ahead. Securities analysts in Norway are worried about the airline’s market value and unforeseen costs that may amount to as much as NOK 15 million per day.

Each Boeing 737 MAX 8 can carry around 200 passengers, so their grounding is causing travel disruption for thousands of people in Norway alone. PHOTO: Norwegian Air

Newspaper Dagens Næringsliv (DN) interviewed a wide range of analysts who all expressed concern about the effect of Boeing’s troubled new aircraft model. Norwegian Air has taken delivery of 18 MAX 8 aircraft and leased out two, leaving the other 16 grounded and forcing major disruption for passengers and the airline itself.

Norwegian Air has initially addressed all the abrupt cancellations of flights that were scheduled to operate with a MAX 8 by reshuffling the rest of its fleet, using reserve aircraft and combining some flights. It’s been aided by traditionally lower traffic and passenger demand in March, so some scheduled flights have had the extra seat capacity needed to help accommodate passengers ticketed on flights that were cancelled.

The airline’s founder and chief executive Bjørn Kjos, who has faced one huge challenge after another in recent years, apologized again to passengers in a video released on Wednesday. He claimed that he and his colleagues had worked through the night to find “solutions” for passengers, adding that “most were taken care of.” Fully 19 flights within, to and from Norway had to be cancelled on Wednesday because of the grounding ordered after the latest fatal crash of a Boeing 737 MAX 8 in Ethiopia on Sunday. Another 10 flights were cancelled on Thursday.

Compensation claims loom
Nearly 10 percent of Norwegian Air’s fleet has now been forced out of service, with no one knowing how long the MAX 8s will be grounded. Boeing ultimately recommended late Wednesday that all MAX 8s be grounded worldwide, after receiving new information about the Ethiopian Airlines crash. Aviation authorities in the US reported that it can take months before programming updates on all the aircraft are carried out.

Kjos made it clear he intends to claim compensation from Boeing for all its extra costs tied to the grounding. Passengers, meanwhile, have no grounds to claim compensation for cancelled or delayed flights since the grounding is beyond the airline’s control. That can help lower Norwegian Air costs, and those of other airlines, but analysts remain worried.

“We see a potential negative effect of NOK 5 million to 15 million per day,” wrote analyst Ole Martin Westgaard at Oslo-based DNB Markets, the securities arm of Norway’s biggest bank. “Even though we believe Norwegian can have a legitimate demand for compensation for its costs from Boeing, the situation remains unclear,” Westgaard added.

‘Cancellations, delays … never good for an airline’
Analyst Jo Erlend Korsvold at SEB agreed. “We’re a bit bewildered ourselves,” Korsvold told DN, while Preben Rasch-Olsen at securities firm Carnegie worries that if the MAX 8s remain grounded through the Easter holidays and into the busy summer travel season, Norwegian will face much greater problems. The airline already has been strained by its rapid intercontinental expansion of recent years and had just raised more needed capital before its MAX 8s were grounded. “Bjørn Kjos can thank his creator that the MAX crisis came after his new stock issue of NOK 3 billion,” wrote DN commentator Thor Christian Jensen.

Rasch-Olsen expressed some optimism, noting that compensation from Boeing could “almost be positive for Norwegian,” potentially offsetting the costs of empty seats on flights in March. Cancellations, delays and dissatisfied passengers, however, are “never good for an airline,” Rasch-Olsen said.

Norwegian Air’s arch rival Scandinavian Airlines (SAS) remains largely unaffected by the Boeing 737 MAX 8 groundings because it doesn’t have any in its fleet. SAS opted for more Airbus 320 aircraft when it most recently renewd its fleet.

Charter airline TUI, which carries thousands of Norwegian on holiday to southern climes, has 15 MAX 8s in its fleet, however, causing travel disruption for around 800 passengers ticketed on packed planes over the next week. Nora Aspengren of TUI said the airline was scrambling to find replacement aircraft. Berglund



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