Norwegian Air enters into joint venture to cut capital expenditure
Norwegian Air Shuttle will add 27 Airbus aircraft to its fleet after agreeing to a joint venture with one of China’s largest banks.
A subsidiary of China Construction Bank – one of the “big four” Chinese banks – will own 70 per cent of the joint venture, which will finance the purchase of the Airbus A320neo planes between 2020 and 2023.
Read more: Norwegian Air no longer expects to fly Boeing 737 Max this year
The move is set to ease financial pressures faced by the airline by cutting its capital expenditure by $1.5bn (£1.3bn).
Shares in the airline were up almost 20 per cent in morning trading today, bucking longer-term trends.
Norwegian has faced financial difficulties over the past year, after its aggressive expansion into the low-cost airline market.
In 2018 alone it added 25 planes and 35 routes.
The company reported in March it had suffered a net loss of 1.45bn Norwegian Kroner (£123.5m) in 2018, despite increasing passenger volume to 37 million flyers.
This sparked a strategic shift in the company to concentrate on building profits and raising capital instead of growing in its flight capacity.
Geir Karlsen, Norwegian’s acting chief executive, said: “This agreement will contribute significantly to reducing our current and future capital expenditure.
“The joint venture is one of many important initiatives that need to be realised to deliver on our strategy of moving from growth to profitability.”
The announcement came as the airline recently recorded strong third quarter results.
Net profit increased by 28 per cent in Q3 to 1.7bn Norwegian Kroner (£144.6m).
Read more: Norwegian Air earnings hit by Boeing Max 737 troubles
Revenues increased by 8 per cent to 14.4bn Norwegian Kroner (£1.23bn).
However, the airline also increased its estimate of the financial impact from the grounding of Boeing Max 737 aircrafts since March.