Boeing 737 MAX grounding 'risks Norwegian’s planned return to profit'

The low-cost carrier embarked earlier this year on a wide-ranging cost reduction programme, which includes reducing frequencies and cutting routes, selling aircraft and postponing delivery of new aircraft.

It posted a first quarter (Q1) loss on Thursday (25 April) of NOK 1.49 billion (£134 million), a significant increase on the NOK 46.2 million (£4.14 million) it recorded last year.

The airline, meanwhile, has increased its 2019 cost target by “up to” NOK 500 million (£44.8 million).

Norwegian has already significantly trimmed its order book, including the partial postponement of its order for dozens of new Airbus aircraft, forecast to save around £440 million over the next two years.

In its Q1 outlook, Norwegian further announced it had come to an agreement with Boeing to postpone delivery of a further 14 737 MAX aircraft due for delivery in 2020 and 2021.

It also revealed further restructuring of its order with Airbus for new A320neo and long-range A321 aircraft, which Norwegian says will reduce capital expenditure a further £519 million during 2019 and 2020 and £1.86 billion over the next five years.

Norwegian’s shorter-term negotiations with Airbus and Boeing will amount to savings of £1.63 billion over the next two years.

The airline in February pledged to pursue earnings rather than growth, cutting its proposed capacity increase from up to 20% to 9%.

Norwegian said it had held “productive” meetings with Boeing after taking its 18 737 MAX aircraft out of service, and on Thursday renewed its pledged to limit disruption to passengers by wet-leasing the necessary capacity and consolidate flights. “The number-one goal is to operate [our] schedule according to plan,” said the airline.

“The company is currently assessing the financial impact of the grounding of Boeing 737 MAX 8 worldwide... [and] further deliveries are put on hold. Plans are in place to uphold the scheduled production and minimise effects on passengers.”

However, Reuters reports the uncertainty around the 737 MAX grounding had “increased the risk relating to the target of a positive net profit in 2019”.

The 737 MAX remains grounding pending a software update and clearance from aviation authorities around the world following two fatal crashes involving the aircraft in just five months.

Lion Air flight 610 crashed into the Java Sea shortly after taking off from Jakarta last October, killing all 189 people on board. Then in March, Ethiopian Airlines flight 302 came down en route to Nairobi from Addis Ababa. All 157 people on board were killed.

Preliminary reports into both crashes suggest the same deep-seated flight control system, the aircraft’s manoeuvring characteristics augmentation system, was active when the aircraft was pitched into a nosedive.

Norwegian also said it would consider changes to its narrow-body fleet this year "given the unresolved situation with the 737 MAX 8 worldwide".