Skift Take

Norwegian may complain about Boeing's 737 Max, but the it's possible this grounding will be a good thing for the carrier. The discount airline has grown quickly, and it may not need all the airplanes it has ordered.

Luck plays a much greater role in success than successful people often acknowledge, and the same applies to business.

Norwegian Air Shuttle ASA, which like its peers has been forced to ground its 18-strong fleet of 737 Max planes following Sunday’s tragedy in Ethiopia, could certainly use some serendipity. While corporate fortunes seem unimportant when you’re talking about a large number of deaths, this isn’t the first time the cash-strapped airline’s flight schedules have been upturned for reasons beyond its control. And there’s a common thread that connects its recent troubles: A fondness for buying new planes.

Norwegian has shaken up transatlantic air travel over the past few years by offering cheap fares connecting second-tier airports such as New York’s Stewart International and Providence, Rhode Island with the U.K. and Ireland.

That strategy owes much to the latest generation of fuel-efficient aircraft, which can fly longer distances at a lower cost-per-passenger. Norwegian has amassed a fleet of more than 30 Boeing 787 Dreamliners, and in 2017 it became the first European carrier to fly the Boeing 737 Max. Its passengers were wowed by the comfortable, quieter cabins (the average age of the airline’s jets is less than four years) but neither plane has been a reliable friend.

Last year, Norwegian was forced to ground many of its Dreamliners because of problems with the engines, which needed replacing. To avoid delays and cancellations, it had to lease replacement planes at great expense. The final bill came to more than 1 billion kroner ($116 million). Norwegian later reached agreement with the British supplier Rolls-Royce Holdings Plc about a refund.

Then, in December, Norwegian was left without one of its 737 Maxes when the aircraft, en route from Dubai to Oslo, suffered engine trouble and was forced to make an emergency landing. The closest airport was Tehran. The bureaucratic complexity of shipping a replacement engine to a country under U.S. sanctions meant it took more than two months before that plane could return home. The stranded aircraft finally arrived back in Europe a couple of weeks ago. Now, it’s grounded again.

Perhaps this is all par for the course in an industry prone to external shocks. Yet Norwegian can ill-afford to disappoint customers or investors right now. The company has only just completed a deeply discounted 3 billion kroner rights issue to shore up its finances. The shares have declined 9 percent since the Ethiopia crash, valuing the airline at about $620 million.

Chris Bryant, ©2019 Bloomberg L.P.

No wonder chief executive Bjorn Kjos has insisted that Boeing must compensate the airline for flight cancellations and the cost of rerouting passengers. For Norwegian that process isn’t entirely straightforward because its 737 Maxes tend to operate on longer routes than the company’s reserve of older 737 planes can handle. Analysts estimate the bill at several million kroner a day. Even Norwegian’s weak balance sheet should be able cope with that, provided of course the Max aircraft aren’t parked for too long.

As part of an effort to preserve cash, Norwegian had already postponed some 737 Max deliveries from 2020 until 2023-2024. Now, the U.S. decision to join other countries in grounding the plane may indicate a more serious and protracted safety review. This could prevent Norwegian from receiving the 16 additional 737 Max planes it anticipated this year.

In some respects that would be a good thing. As I’ve argued, Norwegian has ordered far too many planes and its heavy spending (analysts expect a $1.7 billion outlay in 2019) has put enormous pressure on its finances. But without the new planes, Kjos’s growth ambitions to wrestle customers away from more expensive legacy carriers would be stymied.

Ryanair Holdings Plc boss Michael O’Leary predicted last year that Kjos’s carrier would go bust, and said at the weekend that it would end up being taken over. The perennially difficult winter period is almost over, though, and Norwegian is still flying. Such resilience is impressive. A period without incident wouldn’t go amiss though.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

©2019 Bloomberg L.P.

This article was written by Chris Bryant from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected]

November 16, 2022
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Tags: Boeing, boeing 737 max, norwegian air

Photo credit: A Norweigan Boeing 737 Max 8 takes off from Edinburgh Airport. Norwegian has had to ground all of its Max aircraft. Norwegian Air