U.S. Markets closed

Edited Transcript of NAS.OL earnings conference call or presentation 25-Apr-19 6:30am GMT

Q1 2019 Norwegian Air Shuttle ASA Earnings Presentation

Oslo Apr 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Norwegian Air Shuttle ASA earnings conference call or presentation Thursday, April 25, 2019 at 6:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Bjorn Kjos

Norwegian Air Shuttle ASA - Founder & CEO

* Geir Magne Karlsen

Norwegian Air Shuttle ASA - Deputy CEO & CFO

* Stine Klund

Norwegian Air Shuttle ASA - IR Officer

================================================================================

Conference Call Participants

================================================================================

* Hans Jørgen Elnæs

* Martin Stenshall

Danske Bank Markets Equity Research - Senior Analyst

* Preben Rasch-Olsen

Carnegie Investment Bank AB, Research Division - Analyst of Consumer Goods and Cruise

================================================================================

Presentation

--------------------------------------------------------------------------------

Stine Klund, Norwegian Air Shuttle ASA - IR Officer [1]

--------------------------------------------------------------------------------

Hi, and welcome to Norwegian's Q1 '19 presentation. We will have the Q&A session after the presentation. We'll pass around the microphone to those of you who are here, and then we will take questions from the outside through the Investor Relations mail, and I will read them out loud.

But first presentation by CEO, Bjorn Kjos; and CFO, Geir Karlsen.

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [2]

--------------------------------------------------------------------------------

Hello to everyone. And starting Q1, starting with the highlights of the first quarter. We have been through and completed a preferential rights issue of NOK 3 billion, oversubscribed, so that was well done. In Q1, we have sold and delivered aircraft, 2 neos, with a cash effect of $26 million. And in Q1, we also postponed deliveries of 12 MAXs and 4 321s with a CapEx of $200 million. And as you have seen recently, we have deferred more deliveries. 2 Dreamliners are coming into operation. And we have continued working on the operational improvements. Our FOCUS2019 have exceeded targets (inaudible) NOK 467 million. Target was NOK 400 million. And finally, also improved punctuality. I'll come back to that later. That have a huge effect on compensation. EBITDAR improved since last year despite Easter was, of course, in the first quarter last year.

Okay. If you look at load factor, of course, also, we put 17% growth of capacity into the market. Easter is affecting us, of course, 12% growth in the RPK. And as you will see, we have 81% on load factor. Normally, that will be much higher due to -- if we had Easter also in the first quarter.

8.1 million passengers. And you will also see that on the rolling, we are flying 38 million passengers now. So people are flying with Norwegian.

We have growth in all the airports. We are the largest carrier of Oslo Airport with 44% market share. Our largest growth is actually in U.K., in -- at Gatwick. That's, of course, because all the Dreamliners we have now in Gatwick. We have altogether 13 Dreamliners now in Gatwick. So -- and the market have taken it very well even though we have put already lot of capacity.

You can see where our revenues come from. Norway is our biggest market, and we have growth of the Nordics on a 12-month rolling basis of 7%. But the largest growth in absolute terms are U.S., both in Q1 and 12 months rolling. So U.S. is absolutely -- is very rightly for us on -- especially on the long haul. More than 60 long-haul routes now into operation. And actually, we recently, as we're aware of, that we are now the largest foreign carrier into New York, so larger than the Canadian carriers that was on the top list before us. So needless to say, U.S. is now a very wide market for us on -- in our long-haul operation.

If you come down to the -- we have told the market that we are taking down our capacities. And if you see here, we have grown from 164 last year up to 171 with 5 Dreamliners. It's about flat, more or less flat here. You can see this is the short-haul operation. You can see it's more or less flat. We have sold 13 NGs coming from 52 to 39. And we have 16 MAXs coming in this year that should have come in and should have been up and flying. (inaudible) up and flying, and we don't expect them to be up and flying this summer. We have redelivered 1 NG. Needless to say, we have a leased-in capacity so we don't expect any problems to fly all our passengers that will book on Norwegian throughout the summer. So -- and we have also 2 Dreamliners in operation that can take the -- actually, the top and especially going down the -- to the Mediterranean in the peak.

Our online performance, we have had very focus on getting the online up, and there's just a lot of problems connected to long-haul punctuality. Can -- it was down in that Q1 in 54%, affected a lot by the Rolls-Royce engines. And then you can see that -- what does that mean? That means that almost 4% of our flights were affected by more than 3 hours delays, compensation and care to the passengers. You can see also that the NG is performing well, and it's 3 -- more than 3 hours delays -- 0.3%, sorry, practically nothing. And of course, if this dives, then the cost dives. I know you can understand why we will not be affected the same way with the MAX operation as we had with the Dreamliner operation. The Dreamliner, they -- with the levels on and off on the engine problems, and we were affected by 4.1%. We have -- wet lease we flew 340 passengers, and wet lease aircraft could only take 250, 260. That means that we have to pay compensation for 90 passengers on the flights that we have to cancel so -- and do wet leases for. So that's why -- but when we wet lease, you have the same amount of seats that you have on the narrow-body. So we don't anticipate at all that we will have this care and compensation cost that we have last year, even though that we have all the MAXs grounded.

So this -- it's been a huge improvement. And if you think about -- it could be higher than 76%. I can say that. And then if you go back from New York, you can easily see that we fly to actually more than 600 knots, 650 -- up to 650 knots, but due to the wind, it might be below 500. Then you can -- you don't have to be mathematically Einstein to understand that, that affects more than 15 minutes.

Well, Geir, you can now take over and explain the financials.

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [3]

--------------------------------------------------------------------------------

Yes. Thank you. Okay. Let's just jump to the P&L. If you look at the top line or the total revenue, it's at NOK 7.9 billion or NOK 8 billion for the quarter. I'll go through the operating expenses more in detail a little bit later. You have other losses/gains of NOK 804 million positive. That includes NOK 880 million in positive fuel -- on the fuel hedges. It includes NOK 25 million to NOK 30 million in profits on sale of aircraft. And you have some negative effects on currencies.

On aircraft lease, depreciation and amortization line, that has kind changed now from this quarter due to the IFRS 16. So now it doesn't really include aircraft lease anymore. It is more depreciation and amortization. I'll come back to the IFRS 16 effect for the quarter a little bit later.

But IFRS 16 also influences the net financial items of NOK 522 million. Of the NOK 522 million, NOK 706 million is interest expenses, of which approximately NOK 412 million is related to the leases that has now been brought into the balance sheet. So that takes us down to EBT of NOK 1.978 billion and net profit or net loss of NOK 1.489 billion. Comparing ourselves to the last -- or the first quarter of last year, have in mind that in Q1 '18, we had this so-called effect from (inaudible) shareholding of NOK 1.9 billion positive.

Going into the revenue side. The RASK for the quarter compared to the same quarter last year is down 3%, very much affected by the Easter effect. If we are looking at March and April this year compared to March and April last year, we are definitely up on the RASK, meaning that April looks to be very promising this year. Ancillary revenue is continuing to increase, 3% from last year, and it's now approximately 17% of total revenue. Cargo revenue is also developing good, 34% up from the same quarter last year. Of the other income, 65% of that is -- approximately is revenues from the cargo side.

Cost side. I will come back more in detail to the FOCUS2019 program and how that looks as for today. But the cost -- the base cost -- the underlying cost in Norwegian is continuing to decrease. We don't have any help from the currency side this quarter. But even without, we have 8% and 5% reduction compared to last year on unit costs for this quarter. And we expect that this will continue, the same trend, meaning that we will see the cost level and underlying cost base in Norwegian to come down over the coming quarters.

Going a little bit into -- more into details on the different cost segments. You can see that more or less, all cost segments is coming down except fuel. On fuel, we have headwind on the currencies. I will also like -- the handling cost is kind of not moving the way we would like it to move. It's kind of flat for the time being. I think the reason for that and the reason for the relatively high handling cost last year is due to the care and compensation cost that we had to pay on the 261 last year. And you have kind of a time lag on it, so we are still continuing to pay that into the first quarter this year, but we do expect that to come down from the second quarter and into the remaining part of the year. As it looks now, the care and compensation cost is -- will be more than half in 2019 compared to 2018, where we paid close to NOK 1.1 billion in care and compensation cost or 261 as we say. Technical cost is also coming down. That is partly due to some compensations that we have received from an engine manufacturer. So that has to be taken into consideration.

FOCUS'19 is a big project in Norwegian and has been for a while. We have a guided market that we are going to take out at least NOK 2 billion up in cost savings for 2019. This is how it looks for the first quarter. So the actual cost savings is NOK 467 million realized in the first quarter. It involves a lot of initiatives already that has given results, and we are definitely putting in even more resources now to be sure that -- to make sure that we can take out the same effects for the coming 3 quarters. I would also -- and these descriptions on each area is just some examples on what we have been doing, and this work will continue.

I would also like to just give you an update on how we are kind of calculating the NOK 467 million and how we should look at it when you look at the financials. If you look at the cost base in Q1 2018, it was NOK 7.8 billion. Then you have a 17% increase in capacity since then, meaning in this quarter or in the first quarter, that should have given a raise in costs of NOK 1.3 billion, NOK 1.4 billion. Then we have the fuel effect. So what you should compare against is NOK 9.4 billion for the quarter. Then we have said NOK 467 million plus we have also taken out NOK 302 million in other savings, which we are not including in the FOCUS'19 program. And that takes us down to the cost as for today of NOK 8.7 billion.

So I would say that we are definitely on schedule when it comes to the FOCUS'19 program. The 4 costs for the second quarter looks like we are going to take out savings in the area of NOK 550 million to NOK 600 million, meaning that we will -- as it looks now, we will also be able to deliver in Q2. That said, the MAX situation is giving us certain concerns about the NOK 500 million to NOK 600 million in Q2, but that is still the target, and that is still what we are guiding on for the time being.

What we're also looking out at the cost side is that the fact that we -- as you saw from Bjorn's fleet overview, we are taking down the capacity even more this quarter than what we guided on last quarter. So what we need to do now is to make sure that we take out at least NOK 2 billion in cost savings. I mean internal target in Norwegian is definitely higher than the 2, and that is now what we are kind of heading against, meaning that we should at least see NOK 3 billion when we end 2019.

Balance sheet. Not that much to comment on. Fixed investment is more like -- it's very close to cash. It's related to the financing facilities that we have. So it's -- this is cash sitting in certain bank accounts. Investments still include the -- our shareholdings in Bank Norwegian. Receivables is NOK 10.7 billion. That is to -- that is a high figure. It's -- that is the kind of tickets sold, not cash received as such. We have -- as we have guided earlier, that we have had -- we have reached the limit on capacity with the credit card acquirers. So we have been in the market now the last months in order to secure new capacity and new credit card acquirers. So we have just recently signed up for 2 new ones. We have the same material capacity.

So I will say that during the next months, into May, June and into the summer, these credit card acquirers will come online, and we can then increase the capacity we have. It doesn't really mean that much in the summer period because the -- then (inaudible) will come down anyway because people are traveling through the good season. But this should give us the necessary capacity when we head into Q3 and Q4 and not at least into the winter next year. That then -- that should then make sure that more of the cash sitting with the credit card acquirers is transferring into our own cash as such. And then on the other side of the balance sheet, you could see that we have brought in then all the leases, taking up the debt in total, both on long haul and short -- long term and short term of approximately NOK 33 billion.

Cash flow. A few comments. You might think that you have a very high figure on purchases, proceeds and prepayments of NOK 2.455 billion that relates to kind of a PDP financing that we had on certain Dreamliners that is now kind of transferred into a sale-leaseback. So it comes back in the financing or the principal repayments. So what we have done, we have repaid the PDP loan on those aircraft, and then we have sold them to the leasing company. But if you look at the principal repayments of NOK 3.7 billion, that includes then NOK 1.5 billion approximately on the so-called PDP repayments. You have NOK 900 million in IFRS 16 effect, meaning that we are repaying the leases. So that is a portion of it. And then you have normal repayment of debt in the area of NOK 600 million. And then you have repayment of debt on the aircraft that we have sold and delivered of 7 -- approximately NOK 700 million. So you can say cash flow wise and in this cash flow statement, the IFRS effect is in the area of NOK 1.3 billion. And in the financing cost as such of the NOK 705 million, in that amount -- in that sum, NOK 400 million relates to the interest portion of the leases that we are -- that we have taken into our financials.

So IFRS effect from January 1 is approximately NOK 33 billion. This is exactly what we guided last quarter. So we have had NOK 33 billion into your asset side and the same into the liability side of the financials.

If we look at the P&L effect of IFRS 16, EBT ex-IFRS 16, NOK 1.8 billion. Then we have some effects on OpEx, meaning that you are -- you're kind of -- you're putting certain item into your balance sheet and then depreciate them instead of just making them as cost. And then obviously, you are -- you don't book lease cost anymore, but you take that through depreciation and interest cost. And that effect for this quarter is 106 -- NOK 176 million negative, if we look at the P&L as a whole from the IFRS 16.

CapEx. As you probably saw last night, we sent out 2 press releases, and we have been working for a while with both Boeing and with Airbus. And the aim of that process is to make sure that we can align the delivery schedule going forward to the redeliveries that we have with the leased aircraft and where we can align for -- align it up for the next years in order to have a modest growth, first of all, on short haul.

So on that basis, we have now reduced the CapEx for 2019 and 2020 with $2.1 billion. It divides approximately by $500 million for 2019 and $1.6 billion for 2020. This is also for us to be able to give ourselves -- or to build ourselves a room in order to take the CapEx down as much as possible and where the company can focus on the operation and to make sure that we can get into a profitable situation. And we don't have to be concerned about all the CapEx coming in and all the deliveries that we previously had scheduled for '19 and '20 and '21. So I think we can probably say today that on the restructuring on the order book, we feel ourselves as kind of finalized on that now. We don't expect to do any more reschedulings for the -- at least for the short term. And now we can go forward focusing on turning this company into profits.

So if you look at the 2019 CapEx, we have taken it down -- we're guiding now on $1.7 billion. We are, on the Airbus side, taking delivery of only 5 aircraft for the next 2 years or 1.5 years. All those 5 will go to Hong Kong Express. We are still listing 16 MAXs in 2019. Let's see how many we will take actually delivery of due to the current situation on the MAX side. And then we are now taking down 2020 on the MAXs down to 8 aircraft. It started at 24, so we have now pushed 16 aircraft out in time as such.

On the Airbus side, I would say that after the fact that Cathay Pacific is now looking into buying Hong Kong Express, the value of this aircraft have certainly not come down. And we have -- I think we have between 5 and 10 bids now for these 5 aircraft at good profits for Norwegian. The lease rate -- the 12-year lease rate on those 5 is also pretty attractive, and that's probably the reason why people are willing to bid high figures for those aircraft. Due to the MAX situation, it's no doubt about the fact that the value of the neo order has also come up during the last months as such.

On financing, we have financed a bunch of the MAXs that is scheduled to come. No one is taking delivery of MAXs these days. So -- but we are still comfortable that we will secure financing for the MAXs delivering going forward. And on the 2 remaining 787s this year, we are also comfortable that, that will be taken well care of, and after all, they are both delivering within the next 2 months as such. So going forward on the MAX situation, the MAX orders, we will still continue to focus on the kind of 85% levered financing deals at attractive terms.

Outlook. On unit costs, we are guiding at 30 -- NOK 0.30 or NOK 0.3. It's slightly up, and that is mostly due to the fact that we are actually taking now and guiding that we could see losses due to the MAX situation in the area of NOK 300 million to NOK 500 million for the kind of 2 next quarters. We are planning for the MAXs to not be up running until at least August. So have that in mind when you look at NOK 500 million. We won't be able to comment very much more details on how those NOK 500 million is calculated by obvious reasons.

On the -- including the fuel, we are taking up the guiding slightly as well. That is mostly due to the fact that the fuel prices come up. And also, give -- but have also in mind that we -- the hedges that we put on last year is now also kind of profitable as such. And then we have also guided the market on profitability from '19. Obviously, there's much more uncertainty around that now due to the MAX situation.

We are also taking down slightly the guiding on capacity for the year. Now we are saying 5% to 10%. It's a wide range, we know, but as you know, and as you understand, that is also due to the MAX situation and how that develops for the next months.

Fuel hedging. It might look that we have taken up the percentages for '19. We haven't really done that. We have taken up the percentage, but that is mostly related to the fact that we have taken down the capacity. So as such, we are more hedged for '19.

On market and business. I mean, if we look at the bookings going forward, we -- and especially for the second quarter, it looks very promising, I would say. It looks -- and it's very good to see that, especially long haul is developing very nicely. And Q2 on long haul looks very good compared to the same quarter last year. So that is very good to see. And also, if you look at -- as I said, if you look at March and April together, they will, on RASK level, be better this year than last year. So that means that April especially looks very promising.

So just to sum it up what we are trying to do in Norwegian these days. I mean we have taken out the CapEx, as I said. Final restructuring on the Airbus order yesterday -- late yesterday, actually. That restructuring, that's a complete restructuring of that -- of the whole order. We will come back with much more details on it when we have signed the documentation. We are now in the process of finalizing that documentation. But what we can say is that it reschedules the delivery stream. We have renegotiated certain terms, meaning that we have got better terms. When it comes to the so-called partner, JV partner, we feel that we have aligned this order even better now to fix the needs of a potential partner than how it looked before, meaning that JV discussion is definitely not dead. It's continuing. We have an agreement with Airbus. So now it's more easy for us to negotiate with the other party, and that is really what has taken a lot of time in order to get the proper deal with Airbus. We have sold 15 aircraft with delivery in '19. We will carefully evaluate on what we can sell going forward. Now obviously, we're not going to deliver any aircraft as long as the MAX situation is ongoing, but we do have some capacity to sell more of the NGs. The value of the NGs or the attractiveness of the NGs has definitely come up since we have seen the situation with the MAXs as such.

FOCUS2019 is continuing. We are on schedule, even better than schedule, actually. Q2 looks good. But have in mind that we will have to see any potential effects on the MAX situation and how that will potentially have an effect on the cost-saving program.

So on the grounding, we are guiding potential loss of NOK 300 million to NOK 500 million. That takes us in -- that is for the period from now until, I will say, mid-August, which is kind of what we are planning for these days. We have secured wet leases. We aim to produce and to fly the whole summer program as originally planned. And as you know, we have a very good relationship with Boeing. We are in good -- in a good dialogue with Boeing in order to find a way where we both can come through the situation on the MAXs. So for next quarter, obviously, we will update you more with -- on the MAX situation, on the financial figures affected by it, but that's the best guiding we can give as for today.

I think that concludes it, Stine.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Stine Klund, Norwegian Air Shuttle ASA - IR Officer [1]

--------------------------------------------------------------------------------

Let's start with one here from Alexander Irving, Bernstein. How confident are you that you will not need to raise additional equity in the next 12 months? And what steps are you taking to ensure this?

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [2]

--------------------------------------------------------------------------------

You're the financial guy, Geir.

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [3]

--------------------------------------------------------------------------------

Well, I mean if you see what we're doing now, what -- we have taken out $2.1 billion in CapEx for '19 and '20. That gives us, really, relief also on liquidity. We are doing a lot of measures in order to plan for the coming winter, which is going to be a very important winter for Norwegian. And we are going to make sure that results from Q4, Q1 will be much better than from -- let's say, from the winter that we have behind us. We have secured more capacity from the so-called credit card acquirers, which should give us a lower holdback, as such, which will also bring us more working capital. And in sum, that is what should take us through on a liquidity for the next, let's say, 12 to 18 months.

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [4]

--------------------------------------------------------------------------------

I can also add to that, that what we are seeing in the 12 to 18 months window, we don't see -- foresee any need for any additional equity.

--------------------------------------------------------------------------------

Hans Jørgen Elnæs, [5]

--------------------------------------------------------------------------------

Hans Jørgen Elnæs, financial analyst from Winair. You guided the revenue from the long-haul flights seems to be improving for the next quarter, but you don't guide any RASK figures in your presentation. Do you expect that the competition in Europe would put pressure on unit revenue in Q2 and the summer period?

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [6]

--------------------------------------------------------------------------------

I can answer that. There is always competition. It's been from day one. And it varies very much. Summer looks quite good, to be honest, quite good. And it's very nice to see development of the RASK figures on the long haul, especially out of London where we have large capacity, not at least Paris and Netherlands and Amsterdam. But we also see this picking up very nicely, this new RASK that we have put into the market flying out to U.S. into like Athens. So that looks quite promising market, not too much competition in these markets. But it's -- we have put a lot of capacity in these markets, huge capacity. So we have to anticipate that a lot of people would fight us. We have -- now we have -- we started a 4-day [layover] into New York from London and now we are -- 4-day -- I mean, for weekly. And now we are up to 3 daily. Obviously, there is a lot of capacity that's put into the market, but the market have adapted it and then very interesting to see. We have -- the majority of our passengers flying over the transatlantic is U.S. citizens. So we have actually stronghold in U.S. And needless to say, it's going to be incredible and interesting to see the development of how it will play out, these things that we are planning to do on the long-haul side.

But it's a huge -- of course, Like America, it's incredibly interesting in summertime. It's -- nobody flies here to Rome in November and February. They fly there in, of course, in -- throughout Christmas. But we have to be cautious to take -- to actually utilize the capacity with full effect in summertime and then actually adapted to the seasonality. So on the other side, the -- people really like to fly to Krabi in the wintertime. I don't know if that was a good enough answer.

--------------------------------------------------------------------------------

Hans Jørgen Elnæs, [7]

--------------------------------------------------------------------------------

(inaudible) on the long-haul side. But I think I also would like to know how do you -- how is the future bookings and the RASK looking on the European operation because they observed a pressure on -- from the competition is going to be more intensified this summer, and we already see that some of the operators in the markets indicate that the summer can be tough in terms of the RASK. Is there some comments you can give on that?

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [8]

--------------------------------------------------------------------------------

Yes, I agree on -- especially on the Southern Mediterranean. But fortunately, we pulled out a lot of these routes and took down the capacity considerably because it's more in the Southern Mediterranean. So -- but that's right. But we haven't seen that actually in the Nordics. It's -- the bookings are -- the thing we can see, the bookings are a little bit later year by year. So far, we can see that the bookings is better than last year in the second quarter. RASK and yield is increasing. But it is dependent on the area where we are. There is too much overcapacity, as an example, out of Germany down to Mediterranean.

--------------------------------------------------------------------------------

Martin Stenshall, Danske Bank Markets Equity Research - Senior Analyst [9]

--------------------------------------------------------------------------------

Martin Stenshall from Danske. First question relating to the FOCUS2019 program. Just to get it right about this, the, let's say, midpoint capacity guidance is taking down. And did I hear you right that we should expect then at least NOK 3 billion in cost savings instead of NOK 2 billion on back of this?

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [10]

--------------------------------------------------------------------------------

I'll expect -- I mean that's what we internally are…

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [11]

--------------------------------------------------------------------------------

I didn't hear that. We are guiding on NOK 2 billions.

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [12]

--------------------------------------------------------------------------------

I would say that fair to know, let's call it, capacity adjusted. We're going to -- still going to take out the NOK 2 billion. But because we are taking down the capacity compared to what we guided previously, the cost level nominal should also come down in addition to the NOK 2 billion. And then you can also -- then there's a typical question, okay, what's the run rate? We are saying NOK 467 million for this quarter plus the run rate on that. I guess there's a few one-offs in Q1 and actually in Q4 last year where we take -- where we took out NOK 100 million. So it's actually NOK 560 million that we have taken out since we started the program. But I think there is -- I would say that in the area of NOK 350 million to NOK 400 million of the Q1 figure is something that you will carry forward into our run rate for '20 and onwards.

--------------------------------------------------------------------------------

Martin Stenshall, Danske Bank Markets Equity Research - Senior Analyst [13]

--------------------------------------------------------------------------------

And then regarding the grounding of the MAX aircraft. Do you expect some kind of compensation from Boeing on the NOK 300 million to NOK 500 million?

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [14]

--------------------------------------------------------------------------------

I can answer that. We have a very good relationship with Boeing. We have a very good relationship with Rolls-Royce. Anything on that Rolls-Royce agreement or Boeing agreement will be subject to the NDA, and I will never give you the numbers.

--------------------------------------------------------------------------------

Martin Stenshall, Danske Bank Markets Equity Research - Senior Analyst [15]

--------------------------------------------------------------------------------

Okay. Fine. And then the last question is regarding the renegotiation or restructuring of the aircraft deliveries. You mentioned better terms. Would you please be able to comment on what elements of the contract you are getting better terms on, please?

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [16]

--------------------------------------------------------------------------------

We are not allowed to give you too much specifics on it, but you could say that we have done restructurings where are pushing deliveries out in time. I mean, obviously, you have -- we have what you call escalation clauses, for example. So that is certain terms we would like to discuss with the guys. They are very late delivering the aircraft, which gives us -- could give us a strong hand also when it comes to other terms, like it could be the engine side of it, it could be the base pricing and -- so certain terms around those is what we have kind of been discussing. We have done a package, a restructuring of the whole order, especially with Airbus, but we are not allowed to disclose too many details. But we are -- we feel that we have aligned now the delivery schedule more to the kind of planned growth that we are seeing going forward. But we will disclose more when we have signed up the whole thing, but it's approved by both parties.

--------------------------------------------------------------------------------

Martin Stenshall, Danske Bank Markets Equity Research - Senior Analyst [17]

--------------------------------------------------------------------------------

Okay. And then...

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [18]

--------------------------------------------------------------------------------

I can add to that, actually. When you take the RASK for Boeing, when they take down the capacity or the production, as they have done considerably on the MAX, there will be a shortage of aircraft, of course. So that's why it's much easier now to come to an agreement with what we would like.

--------------------------------------------------------------------------------

Martin Stenshall, Danske Bank Markets Equity Research - Senior Analyst [19]

--------------------------------------------------------------------------------

And then just as a follow-up on the JV you're working on. I think that Airbus mentioned back in March that we maybe could see a final agreement by the end of Q1. Would you be able to comment anything about expected time line where we can see a JV agreement?

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [20]

--------------------------------------------------------------------------------

The way you have to look at that is that yes we have been working on this so-called JV or defined partner to co-invest with us into part of that fleet, and that is continuing. Those discussion has been between 3 parties up to now. Now it's more like we have now a fixed set deal with Airbus. Now it makes it much more easy for us to potentially discuss with the same partner on a JV. Also, I think we have aligned delivery schedule now that fits better. And in -- but you have to also think that in -- we have actually bought ourselves much more time now. We are not going to have any PDPs to Airbus until second quarter of 2021. So now we have to evaluate now. Do we want to go into a partnership now? Would it make sense to wait because we think the values are going to come up? We have optionality as I see it. But that said, that -- those discussions are definitely not dead. They're still very much alive.

--------------------------------------------------------------------------------

Martin Stenshall, Danske Bank Markets Equity Research - Senior Analyst [21]

--------------------------------------------------------------------------------

And the last question for me regarding Brexit. Could you please share some thoughts about Brexit and how you're preparing for the rest of the year and into 2020 regarding Brexit?

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [22]

--------------------------------------------------------------------------------

We have -- it affects a lot, all this from certificates to pilots, to -- so we have a long list of all things that we have to go through to be able to adapt Brexit and to be prepared for Brexit. So that -- and of course, the date for the Brexit was much closer than we anticipated. So we have been aware of this Brexit date. And I think, obviously, there might be things that we haven't even thought about when Brexit comes -- if it comes. Now it seems like they are losing Scotland. You'll never know. But if it comes, I think what you can see is everybody is more cautious. They want to go on holidays, so -- that's for sure. They book their holidays and so on. But what we see is that I think that a lot of people, especially in the business banking sector, as an example, they're moving out. So they are more cautious about it. But we cannot see precisely because the majority of our customers -- or our customers come from U.S. And it's cheaper now to go to London than it was before. So that's why what is the actual effect, it's very hard for us to see. I think that people flying out of Heathrow, as an example, would see it much easier than we would.

--------------------------------------------------------------------------------

Preben Rasch-Olsen, Carnegie Investment Bank AB, Research Division - Analyst of Consumer Goods and Cruise [23]

--------------------------------------------------------------------------------

A quick question for me. Preben Rasch-Olsen, Carnegie. You seem very comfortable with Q2 bookings and also the RASK, but what about the (inaudible) July and August? Can you say something about how much is booked of your capacity in those 2 months or how much is booked now compared to the same period last year?

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [24]

--------------------------------------------------------------------------------

The only things I can say actually is that the people that are sitting with these numbers, they are quite confident, and that is the only thing I can say. And we are aware of the -- that it is -- have been gradually later and later bookings throughout July, August. It's nothing -- we can see -- as an example, out of Sweden, the [APD], the taxes out of Sweden has actually -- that's hit everybody, mainly domestic in Sweden. But people are traveling on holidays. And we don't expect actually July, August to be something quite different. We expected the cargoes will fill the airplanes. So it's nothing that we can see in this picture that actually should -- that we should stay awake in the night for.

--------------------------------------------------------------------------------

Stine Klund, Norwegian Air Shuttle ASA - IR Officer [25]

--------------------------------------------------------------------------------

One question from Petter Nyström, ABG. What is the base case for your EUR 250 million loan maturing late '19, pay down or refinance?

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [26]

--------------------------------------------------------------------------------

Yes. Well, that's the 2 alternatives, I guess. No, we are trying to make sure that by the kind of initiatives that we have done, discussed here today in order to give us exactly that flexibility, either to refinance it or to repay it or partly refinance it, for example. It's not necessarily we have to do the whole amount, if we decide to refinance. So what we will do now? We have already taken -- we're already in discussions with our advisers in order to kind of prepare to see if -- find a market window from now until then, where we could potentially refinance it going forward. So -- but we would like to have flexibility, but we're definitely on it already.

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [27]

--------------------------------------------------------------------------------

And I can add to that. Obviously, taking down the CapEx is -- gives us a lot more room, maneuvering room.

--------------------------------------------------------------------------------

Stine Klund, Norwegian Air Shuttle ASA - IR Officer [28]

--------------------------------------------------------------------------------

And one from (inaudible) regarding JV and reschedule of deliveries. Did Norwegian lose value when postponing deliveries? Is MAX less interesting for the JV now?

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [29]

--------------------------------------------------------------------------------

I think I've answered that question. I mean I don't think it has taken any value out of it, definitely not. And on the MAXs, well, I think -- on the MAXs, those discussions are kind of a little bit dead now as we have the current situation. That means that there is no one taking delivery of MAXs. There is no one really looking into financing MAXs. It's kind of just -- it's in a limbo situation amongst everybody. So -- and we will have to see when this aircraft is starting to fly again. But value-wise, it's possible to come up with a value on a MAX delay by obvious reasons. But on the JV, on the Airbus order, I mean, if anything, the value of that order has gone up also due to the same issues.

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [30]

--------------------------------------------------------------------------------

And of course, just to add to that, needless to say, the American authorities like AFIC is even more behind financing the MAXs, my guess, in the future than they have ever been. They will not see that you are not running out of options to finance MAX because of this. That has been -- actually, we have seen -- we saw it through the -- after this -- when we have this turbulence in the market for Ex-Im, as an example, they sticked up the financing to be sure that, that shouldn't be -- that shouldn't impact the financing or the purchase of the aircraft because Boeing is the biggest export customer or exporter to -- out of U.S., and it would be a failure, I think, for any administration to see that these are fail because they cannot finance it, whether it will be from AFIC or Ex-Im.

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [31]

--------------------------------------------------------------------------------

I think also looking at the MAXs that we have financing on, that hasn't delivered yet, that will be delivered at some point, there is no -- absolutely no signs that those financiers will back out, absolutely not. They're still there. They're just sitting and waiting, and then they will come.

--------------------------------------------------------------------------------

Unidentified Analyst, [32]

--------------------------------------------------------------------------------

I just would like to follow up on the eurobond. 2 alternatives, as you mentioned, to refinance or repay or maybe a combination, if it's possible. The bond is yielding quite high percentage now. And could you please share your thoughts on what you would prefer or what kind of, let's say, threshold you would be willing to accept on, let's say, a yield on the refinancing alternative? Just to get it clear that what we should expect on these 2 alternatives.

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [33]

--------------------------------------------------------------------------------

I mean as you are saying, it's now trading at unattractive levels. But the focus that we have now internally is to make sure that we now -- we're going to get through the summer, then we're going to take the necessary steps in order to make sure that the next winter, which is the next difficult season, is not even close as bad as the one that we have behind us, right? And then we are going to do whatever we can in order to convince the market, including the bond market through the summer and after the summer, in order to give confidence that we will go into 2020 making a profit in Norwegian. And by that, we should get better terms on the bond. And on that basis, we will reconsider to refinance it, but definitely not the terms that we could get today.

--------------------------------------------------------------------------------

Unidentified Analyst, [34]

--------------------------------------------------------------------------------

Looking to the Far East. I know [Luo Cheng] was recently in Moscow. Are there any news on traffic rights flying in [Serbian] corridor and over Russia? And looking also into Finnair Q1 result, which are very poor and also forecasting that competition will increase and has increased from Asian carrier to Europe, are you still as hungry as you were earlier to fly massive to Asia?

--------------------------------------------------------------------------------

Bjorn Kjos, Norwegian Air Shuttle ASA - Founder & CEO [35]

--------------------------------------------------------------------------------

It's obviously a huge market, recurring market. It will have dips from [London], especially from -- not only from the Nordics it is, but as an example, from U.K. It's a huge market. But this has a lot of politics into it. So we'll have to see. It's actually interesting to watch. So we will decide if it's time to be economic for us to whatever we are doing. But if you look at the way to operate both east and west, it's -- it will definitely take down the cost by doing it.

--------------------------------------------------------------------------------

Stine Klund, Norwegian Air Shuttle ASA - IR Officer [36]

--------------------------------------------------------------------------------

Any further questions? Good. Thank you.

--------------------------------------------------------------------------------

Geir Magne Karlsen, Norwegian Air Shuttle ASA - Deputy CEO & CFO [37]

--------------------------------------------------------------------------------

Thank you.