Good day, ladies and gentlemen, and welcome to the conference call to discuss Norwegian second quarter results. For your information, this conference is being recorded. At this time, I would like to turn the conference over to Mr. Tore Østby. Please go ahead, sir.
Thank you. Good morning. On this Q&A call, I have with me our CEO, Bjørn Kjos, and our Investor Relations Officer, Stine Klund. The highlights from the second quarter was that we again, earlier this quarter, won the Skytrax award for the best global low-cost airliner. In the short haul, we won it for the fifth time in a row as European best low cost player. We have started up single intercontinental operations between the U.S. and the U.K. now in June, and also with Norway from Bergen to the U.S. We've added a total 11 new aircraft in this quarter, and that is two new MAX 737s, eight 737-800s, and one Dreamliner. The eight 737-800s are all financed through sale-and-leasebacks as we have previously announced. We have also signed a letter of intent to sell 11 aircraft, older 737-800s, with on average a five-year leaseback.
That is going to be completed during third quarter, probably early August. We have sold 2.5% of Bank Norwegian, we have restated Bank Norwegian as a financial asset. EBITDA, excluding other gains and losses, was NOK 256 million, compared to NOK 826 a year ago. NOK 864 a year ago. If you look on the bridge on our page 17 in our presentation, you can see the bridge from last year. The main change or drivers to the change in results compared to last year was a NOK 300 million extra fuel bill, NOK 300 million, NOK 187 million lower revenue related to the lower yield in the 3% lower unit revenue compared to last year.
We also had a NOK 68 million in wet lease cost in this quarter related to ground damage on one aircraft, one long-haul aircraft, and also the startup of the MAX operations because the MAXes were delayed. We also had a higher lease ratio in the quarter because of the sale leaseback, so we then have to incur some of our lease cost or an increased lease cost under EBITDA. Of course, if we own those aircraft, that would be depreciated instead. If you look on the unit cost on page 19, you can see that the main driver to the results, as we explained, was the higher fuel cost, mainly driven by price, a 22% increase in spot prices and a 3% negative currency effect. Our personnel cost was according to plan. We had a 41% increase in full-time employees year-over-year.
Of course, that is because the strong ramp-up in growth we're going to have in the second half of this year and into 2018. Our airport charges and handling costs fell year-on-year. We have taken over our own handling operations in Gatwick and in our Spanish airport. That's the key driver, but also increased sector length. If you look on our leasing cost, that is the strongest increase. We have done a total 19 sale-and-leasebacks since Q3 last year. That's driving up our lease cost. Most of that will be offset by lower depreciation and interest cost. The same driver for technical cost, because we lease 49% of our fleet versus 42% last year. We have an increase in technical cost as we have to record maintenance funds up front when we lease.
If you look on our guidance, our first touch-up on financing, we have done all the financing we need for 2017. We have 2 sale-and-leasebacks on the back end of the year, and we have firm offers by several players on those contracts. We will just finish that very shortly. With that, we're guiding down our cost or so CapEx for the full year to $0.7 billion from previously $1.3 billion. If you look a year back, we have actually cut our CapEx program for this year from $2.1 billion to $0.7 billion. We're now working on finalizing the 2018 financing, and we will most likely use the same facilities as we've done this year. Ex-Im financing, if that is open, the AFIC structure in the U.S. for our MAXes and European ECA financing for our Dreamliners.
We have changed our guidance when it comes to ASK production. If you look on the outlook on page 26, you can see that we do see very strong bookings ahead of the summer, especially going into August and September. We are ahead of last year. We do expect 25% production growth year-on-year for 2017 versus 2016. That is slightly lower than the previous guidance, as we have to reduce the capacity for our long-haul operation because of engine maintenance for all the Dreamliners. All the Dreamliners will get new engines, and we will do that in the second half of this year. We have also had a 2% lower production so far in the first half compared to our plans. We expect the unit cost for the full year, including all the fuel effects from the first half of NOK 0.42.
The increase is driven by two factors: reduced ASK growth, which is half of the explanation. That is just as we spread out our cost on the lower volume. The other explanation is that we're doing the sale-and-leasebacks. The total sale-and-leaseback cost, most of that will be offset by lower depreciation and cost of financing. With that, we expect our unit cost, including leasing, to be NOK 0.42 for the full year. I think with that, we will open up for questions. Please, operator.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. We will now take the first question from Dan Toto from Handelsbanken. Please go ahead.
Yes, good morning. Relating to your ASK guidance reduction from 30% now 25%, is there any of this production growth reduction that is relating to a more soft market environment that you're seeing? Is some of its expansion, or is this growth that you're taking down in 2017 postponed to some extent into 2018? We would see a stronger 2018, basically.
I can answer on that question. No, the answer is simple, that in order for us to have the new engines on the Rolls-Royce engines, Boeing have to certify these engines, and then they have to have a Dreamliner. They have asked us to borrow our Dreamliner that was supposed to be delivered September, October for testing. We have agreed on that. They are testing the new Rolls-Royce -10 engines, a test that will be finished last part of Q4. That also means that what's in it for us? Yes, in it for us are that we will be the first airline to get the new -10 engines from Rolls-Royce that are 2%-3% lower fuel burn, much better engines. We get them on all our deliveries for 2018, and also they will install these -10 engines on our present fleet.
That means that we have one wide body less for that quarter into use. This will only be for the last quarter. It will not affect the next quarters.
Okay.
In general, Dan, in general, it will have no impact on 2018 production because we have the aircraft deliveries, but they will come later. We will also have to have one aircraft out all the time in the back end of this year for engine upgrades.
Okay, thank you. Understood. One question to your CapEx for 2018, the NOK 2.1 billion there. You mentioned various sources. How much of that is financed by now, basically?
In theory or in the indications we have, is that we will get ECA financing for all the Dreamliners. We have the 12 MAXs. We have five Dreamliners coming on stream next year and 12 MAXs. I would say that we have two choices for the MAXs or two kind of favorite financing sources. One is the AFIC structure, and the other one is the EXIM financing. In general, I would say half the financing is in place already. The other half is now a choice between two different financing structures.
Okay. Thank you very much.
The AFIC-
Yeah, the AFIC, I can add to that. The AFIC is set up by Boeing, of course.
We don't anticipate any problems with the financing on the MAXes, and we don't anticipate any problems also financing the Dreamliners.
Understood. Thank you.
Once again, ladies and gentlemen, if you wish to ask a question, please signal by pressing star one on your telephone keypad. We will now take the next question from James Hollins from Exane. Please go ahead.
Oh, yeah. A few from me, actually. The first one was just on the CapEx. Can you just let us know what the gross CapEx for 2017 is? Obviously it looks like you're giving a net number. Also, can I assume that the 2018 CapEx of NOK 2.1 billion is all assuming no disposals? The second one, just can you give guidance on what your capacity planning is for 2018? Clearly we have this issue, which you're saying it doesn't change things, but according to what I'm seeing, the Q2 fleet guidance for 2018 and 2019 relative to what you said in Q1 has gone up by two MAX 8s for both years. Then maybe just a more generic question, where we are on feeder deals with easyJet and Ryanair, which I think there's been some headlines on that. Thank you.
I can start with the CapEx. The gross CapEx for this year before sale of aircraft, if you include all the sale-and-leasebacks or if you just take out the older aircraft we're selling, the 11 older aircraft we're selling now, gross CapEx will be $1.1 billion . The $0.7 billion U.S. dollar is the net of sale of those 11 aircraft. If you look on the growth next year, we have said that we expect capacity for the Dreamliners to double. We've been specific on the ASK production we expect for our Dreamliners or for our long-haul operation next year. When it comes to short-haul operation, we will have limited growth, including the MAXes. We have 12 aircraft coming in, plus two 737-800s, a total of 14 aircraft.
As these aircraft come onstream during the year, the net growth for us will be five or six aircraft on a full year basis. On top of that, we are retiring and redelivering four 737-800s. We will have limited growth, single-digit most likely growth for our short-haul operation.
I can add to that. As you know, we have applied for 141 routes to have concessions on these routes in Argentina. We have to start up a lot of these routes when we start up in Argentina and if we get the concessions. We will highly likely lack capacity and have very limited possibility to grow short-haul in Europe. I can also, to the other question of the agreement with easyJet and Ryanair, as we told earlier, it is about having the software systems or the platforms to speak to each other. We anticipate actually that we will be able to conclude a deal with one of these two and make it officially just in some weeks.
Okay, thanks.
Yeah, thanks, James.
Once again, ladies and gentlemen, to ask a question, please signal by pressing star one on your telephone keypad. We will pause for a moment to allow for any further questions. We will now take the next question from Achal Kumar from HSBC. Please go ahead.
Hi, morning. This is Achal from HSBC, since Andrew is traveling, I've been given the command. I have only one question, actually. Just wanted to understand what is driving your CapEx cut for 2017, please.
Excuse me, I'm not sure if I got your question right, Kumar. What is driving our capacity cut?
No, what is driving your decision to cut the CapEx guidance from $1.3 billion to $0.7 billion ? What is it that is driving that?
Yes. We have a couple of drivers. First of all, we have delays in deliveries of the Airbus aircraft that we will take delivery of and lease out to Hong Kong Express. That is pushed out in time. One other driver is that we decided to do sale-leaseback of all the NG. We've done 15 sale-leasebacks this year so far, and we will do two more. That is the key drivers for the change in our CapEx for 2017.
Right.
The reason for doing sale-leasebacks is that we don't want to have too high exposure to the older version of the 737. We prefer to have the 737 MAX on our balance sheet.
Right. Okay, fine. Thank you so much.
We will now take the next question from [Craig Bennett] from [Agonau Capital] Please go ahead.
Oh, hi. Morning. It was a question really on the sale and leasebacks, and you mentioned your rationale was to not take the older planes on your balance sheet. Could I ask it another way? Could you give us some confidence, is it not more to do with your potential CapEx ramp up in the very near future and the cash burn that you may be seeing across the group, and this is a way to bring forward your cash flow? Could you just give us a bit more confidence on the cash flow and the balance sheet?
You see, we have close to NOK 6 billion in the bank. It's nothing to do with the cash flow. You see that we have a very good cash flow. It's just what is the value of the aircraft, of the engine in 2025, 2028, when first you have the MAX. We have 110 MAXs delivered, and we are starting to get the new [inaudible]. Tell me the value of the engine in 2028. We'd rather say that we know what the value is in 2017. In order to lower the risk of the residual value, we sell it today.
The people that you're doing the sale-and-leasebacks with, they share a different view about the value of the engine in the future? Is that reflected in the lower price that you may receive?
They are the newest in the market today. You have to think 10, 12 years ahead. Today, it's the going value. It's a high value on these aircraft today.
All right.
Originally, we have said that we will fly this aircraft for eight to 10 years and replace them. If you look on the older aircraft we're selling now in Q3, they are now eight to 10 years. The sale-and-leasebacks we've done are for aircraft to 10-year leases for the new ones. For the older ones, we keep them till they are 10 to 12 years old. I think it's no really big change in our strategy. The difference is that now we get the MAX deliveries. The question is whether we want to sell them now, when we know we have a good price, or wait five years, and then we don't really know what the price is. That's the rationale for those sale-and-leasebacks.
All right. Just lastly, I may not be aware of it, have you given guidance for your CASK for 2018?
No, we will come back to that on our Q3 presentation, on the next presentation. We normally give that guidance on Q3. What we have done is we have given ASK guidance for volume guidance for our long-haul operation. We gave that in Q4, on our Q4 2016 presentation. We will come back to the unit cost and the full ASK capacity for next year on Q3.
All right. Thank you very much.
Thanks.
Once again, ladies and gentlemen, to ask a question, please press star one. We will now take the next question from Dalia Vellan from GLG. Please go ahead.
Hi. Good morning. I have a couple of questions. One is, what is the interest rate you're paying on your leases, on your capital leases when you do this sale-and-leasebacks? Also one question just to clarify, your cash went up last quarter. Did you already receive and book the cash from the sale of the Bank Norwegian sale? Was it the reason why cash went up at the end of the quarter?
I can start with the comment on, we cannot comment on the yields on the sale-and-leaseback contracts. What we've seen is that they are competitive and much better than the rates have been a few years ago. It's more a question for us about removing residual value risk than it is to use it as the key financing. If you look on our fleet, we have 49% of our fleet is leased. We still have 51% of our fleet on balance. We will buy all the MAXes and the MAXes will not be sale-and-leasebacks. This is a question about sale residual value risk as the key. The second question was?
The cash effect from
Yeah, the cash effect from the Bank Norwegian. We sold 2.5% of Bank Norwegian for roughly NOK 360 million. That's the cash effect from sale of Bank Norwegian.
It's already reflected in your cash position at the end of second quarter, or?
Yes. It's included. Yeah. The NOK 360 million is included in our cash position at the end of the quarter. The rest of the impact from the Bank Norwegian is restating the value of the remaining 17.5% shares. Remember that we do have a full economic exposure or financial exposure to a 20% stake, but we have contracted or a TRS agreement to sell 2.5%.
Okay.
It's not a minor part of the cash balance.
That NOK 2 billion which you booked in your net income, it seems like you put it through the cash flow statement. Was it cash or non-cash?
If you look on the cash-
It's reflected in your cash, but from what you say, it sounds like it wasn't cash because you just revalued it, right?
If you look on the cash flow statement, which of course strip out all the non-cash effects and the restatement of the value of the 17.5% of Bank Norwegian have no cash effect, of course. The same goes for MRC funds, we have recorded as an impairment cost in our P&L. That is also a non-cash cost. Of course, that is all stripped out of the cash flow. The only cash effect we have from Bank Norwegian is the 2.5% we have agreed to sell. Those were sold, but we do have an economic or financial exposure for one year.
Okay.
For the shares.
Okay. Thank you.
Thank you. I think with that, we have to round off here. We will be available for other questions. Please, if you have any other question, email or call Stine Klund or me during the day. Thank you.
Ladies and gentlemen, this will conclude today's conference call. Thank you all for your participation today. You may now disconnect.