Norwegian will partner with China Leasing International Corporation DAC (CCBLI) to finance new aircraft deliveries over the next four years. The joint venture, with CCBLI holding a 70% stake, covers 27 of the A320neo family aircraft Norwegian currently has on order, slated to arrive from 2020-2023. The news delivered a 20%+ boost to Norwegian’s shares in early trading in Oslo.
Following several months of negotiations, I’m very pleased to announce that we have reached an agreement with CCBLI to establish a joint venture for an initial 27 Airbus A320 NEO aircraft. This agreement will contribute significantly to reducing our current and future capital expenditure. The JV is one of many important initiatives that need to be realized to deliver on our strategy of moving from growth to profitability.– Norwegian Acting CEO Geir Karlsen
Norwegian indicated that the JV will reduce its capital expenditure requirements related to the aircraft by $1.5 billion. Assuming that $1.5bn represents 70% of the acquisition costs for the 27 aircraft, the average plane price comes in just above $79 million, a nice discount from the $110 million list price but well above the typical 50% discount assumed for large orders from established airlines.
The A320neo family order by Norwegian, initially placed in 2012 for 100 aircraft, will be managed by the carrier’s wholly owned aircraft leasing arm Arctic Aviation Assets DAC (AAA). While the orders showed off the planes in Norwegian livery, it is expected that they will be leased to third party airlines rather than operated as part of Norwegian’s fleet. Of course, that assumption was made when the 737 MAX was still flying. With Boeing confident the planes will return to the skies before the end of 2019, however, it seems unlikely that a change in that fleet plan will be required, especially as Norwegian continues its transition from growth to profitability. HK Airlines was the first carrier to take on leased planes from AAA, beginning in late 2016.
It is interesting to note that Norwegian’s Acting CEO Geir Karlsen described the deal as “an important first step in building a strong strategic partnership between our two companies” while CCBLI’s Kevin Mi highlighted a longer-term relationship between the two companies, including prior deals, “We have during the past year developed a good relationship to Norwegian, including two already executed transactions and we are very much looking forward to continue to build on this relationship through this JV.”
Separately, Norwegian’s Q3 19 earnings report shows strong revenue trends, with a 3% increase in unit revenue and an 11% increase in ancillary revenue per passenger. Overall capacity is down as a result of the 737MAX grounding while load factor is up for the quarter.
US originating traffic represents the largest portion of the carrier’s revenue for the quarter, surpassing Norway’s position in that role from 2018.