Norwegian Air Boosts 787 Fleet With $5 Billion Boeing Deal

  • Order is largest in Europe for mid-size version of Dreamliner
  • Carrier has options to purchase 10 more wide-body jets

Norwegian Air Shuttle AS agreed to buy 19 Boeing Co. 787s worth more than $5 billion at list prices, doubling the size of the Dreamliner fleet that it’s counting on to make long-haul discount flights profitable.

The purchase equals the largest in Europe for the mid-size 787-9, the Fornebu, Norway-based company said in a statement Thursday. Deliveries will begin in 2017, and the carrier has options for 10 more aircraft.

"Our calculations are clear,” Chief Executive Officer Bjoern Kjos said in an interview in Oslo. “You have to fly new planes. The low-cost carriers that make money fly only new planes, not old ones. This is just the start."

Norwegian Air is pursuing one of the industry’s most ambitious growth plans as it bets that the 787 will allow it to thrive in a long-haul market where no-frills predecessors such as Laker Airways have failed. Shares of the carrier, which competes with Ryanair Holdings Plc in short-haul flights, fell 8.9 percent after it posted earnings that below analyst estimates.

Financing Sources

Norwegian Air currently operates eight smaller 787-8s and has already ordered 11 of the -9 variants with deliveries starting in 2016. The new planes will most likely be financed with a mix of commercial loans and export credits similar to those used in the past, Chief Financial Officer Frode Foss said. The jets will be owned by its Arctic Aviation Assets Ltd. arm.

The carrier began long-haul flights using 787-8s out of Scandinavia in May 2013, pushing ahead amid teething problems with the new model. The following year, it added connections from London Gatwick to New York, Los Angeles and Fort Lauderdale, Florida. It continues to face resistance from U.S. pilots over plans to operate the fleet via an Irish-registered subsidiary.

The company has also ordered 100 re-engined Max variants of Boeing’s short-haul 737 and 100 of Airbus Group SE’s competing A320neo under a 222-plane, $21.5 billion deal with the two manufacturers announced in 2012. It aims to lease out planes it doesn’t need and has arranged to place 12 A320s with third parties, including the first four it will receive in 2016.

Cost Concerns

Third-quarter net income totaled 832.8 million kroner ($66 million), short of the 897 million-krone average of seven analyst estimates compiled by Bloomberg. Operating revenue gained 15 percent to 7.3 billion kroner.

Goodbody Stockbrokers analysts including Mark Simpson in Dublin said the previous step-up in long-haul capacity in 2013 and 2014 “came at the expense of returns and profitability,” while Ross Harvey at Davy Holdings said the carrier’s updated forecasts for full-year expenses indicate a “much worse outlook on ex-fuel costs.”

Norwegian Air shares fell as much as 31 kroner to 317.5 kroner and were trading down 7.9 percent at 321.1 kroner as of 1:07 p.m. in Oslo.

Air France ordered 25 787-9s in 2011 before amending the deal to specify 19 of the mid-size plans and six larger 787-10s.