Norwegian Air hailed a move “in the right direction” on its financial turnaround this week as chief executive and joint founder Bjorn Kjos stood down.
Kjos will depart on July 11, with chief financial officer and deputy CEO Geir Karlsen stepping up while the airline seeks a new chief executive.
Chairman Niels Smedegaard, who joined Norwegian in April, will also take “a more active role in management”.
So it’s the end of an era at Norwegian which has grown like gangbusters under Kjos, breathing new life into efforts to make a financial success of low-cost, long-haul flights – while throwing caution to the winds on cash.
Norwegian marked Kjos’ departure announcement by reporting an “underlying operating result before ownership costs” of more than NOK 2.3 billion or €240 million (£210 million) for the six months to June.
Leave aside for a moment that phrase “before ownership costs”. It was the best second quarter result the airline has recorded and more than double the figure for the same period last year.
A mark of progress on the turnaround then? Not quite.
Behind the carefully chosen headline figures, the carrier reported a net half-year loss of NOK 1.4 billion or €146 million (£131 million).
By way of comparison, Norwegian recorded a net profit of NOK 254 million in the same period last year when it went on to record a net annual loss of NOK 1.45 billion.
At the same time, Norwegian’s debt has more than doubled year on year to NOK 62.7 billion – that is €6.5 billion (£5.8 billion).
Fighter pilot and founder
Kjos announced his decision to stand down – he will remain as “advisor” to chairman Smedegaard – saying: “You should not lead an airline past your seventies.” He is 72.
A former fighter pilot, Kjos co-founded Norwegian and jointly owns the largest shareholding in the airline.
With Kjos in the cockpit the carrier grew from a small domestic operation with four aircraft and 130 staff to an international carrier with a fleet of 162 aircraft and 11,000 employees.
Yet the combination of budget fares and eyewatering aircraft orders meant Norwegian has haemorrhaged cash.
As a consequence, Karlsen – who joined in April 2018 – confirmed a change of strategy at the end of last year.
Norwegian would curb expansion and slash NOK 2 billion in costs in 2019.
Early this year, Karlsen acted to raise NOK 3 billion (£272 million) through a rights issue – an offer of additional shares to existing shareholders.
Norwegian said then: “The company has reached a point where it needs to make adjustments to improve sustainability and financial performance.”
It confirmed card acquirers had withheld credit card payments “during the last few months of 2018” and announced a series of base closures.
Yet it continued to launch routes while struggling with the fuel price. Karlsen revealed last autumn that the carrier was just 22% hedged on fuel for 2019.
In its defence, the carrier has also struggled with maintenance issues on the Rolls Royce engines of its Boeing 787 long-haul fleet – being forced to lease aircraft up to 20 years old to replace up to three 787s at a time.
And it has suffered the grounding of its Boeing 737 Max aircraft since March, of which it has 18.
The airline still has large numbers of new aircraft on order but has confirmed an agreement with Airbus to reschedule deliveries.
Yet plans to set up a joint-venture aircraft-leasing business, revealed last year and aimed at redirecting Norwegian’s fleet orders to other airlines, appear stalled.
Details have still to be confirmed beyond Norwegian revealing it is in talks on a joint venture with an unnamed company in Asia.
Smedegaard paid tribute to Kjos this week, saying: “Bjorn is one of the most influential European entrepreneurs of our time.
“His vision of offering affordable fares for all has revolutionised the way people travel.”
Yet Smedegaard, previously president and chief executive of Danish shipping group DFDS, noted: “Running a profitable business will be key for the [new] CEO going forward.
“We have to ensure Norwegian is well prepared and positioned to handle volatile markets and unexpected events.”
It is telling that Kjos will depart without a permanent replacement in place. That smacks at best of lack of planning, but more likely of a disagreement on direction and a sharply taken decision.
Regardless of the upbeat tone of this week’s announcements, Norwegian remains in profound difficulty.
The Financial Times quoted Daniel Roeska, an analyst at Bernstein, who summarised Norwegian’s position thus:
“The company is leverage to the hilt and we have not seen any major airline walk away from that mountain of debt without a bankruptcy.”