Low-Cost Airlines Are Crashing into Bankruptcy One After the Other as Financial Conditions Tighten in Europe

But traffic is up, and these are still the good times.

By MC01, a frequent commenter, for WOLF STREET:

Ryanair lowered its 2018 profit guidance from a range between €1.1 billion and €1.2 billion to a range of €1.0 billion to €1.1 billion, in what Ryanair CEO Michael O’Leary called “a disappointment.” While over one billion euro in profit can be hardly called a catastrophe, it’s easy to understand the reasons of Mr O’Leary’s disappointment.

Ryanair saw passengers throughout 2018 grow by 9% to 142 million and “strong ancillary sales,” meaning sales of additional services such as premium seats with more legroom and on-board catering. In spite of all the bad publicity – for example, Ryanair was named “worst short-haul airline” a couple of weeks ago — it remains not merely Europe’s most popular low-cost carrier, but also a model for turning what has long been considered a loss-making enterprise into a profitable business.

Ryanair’s lower than expected profits are the result of a price war with a host of competitors; many of them do not seem to care about profits (or breaking even) and seem to have access to nearly unlimited capital. Until they don’t.

Ryanair also warned that Laudamotion, whose purchase it finalized last year after much drama, will incur “extraordinary” financial losses in the €150-140 million range for 2018, thus confirming Laudamotion’s previous financial record as a loss-maker.

This also raises an interesting question: Why would a profit-focused company such as Ryanair bother with acquiring a cash-burning machine? While Ryanair has buried the reasons for this unusual purchase under a thick layer of corporate-speak, the most likely reason is that Ryanair wanted Laudamotion’s routes from Austria and Germany to vacation destinations in Greece, Morocco, Portugal and especially Spain, and wanted them soon enough to put up with Laudamotion’s well known financial issues.

As Michael O’Leary so wisely said on several occasions, Europe suffers from “short-haul overcapacity” and Ryanair has to deal with literally dozens of “loss-making competitors,” no doubt owing their survival and expansion to those highly repressed financial conditions that have fueled the “Everything Bubble.”

But these “loss-making” airlines have started to feel the pinch, more from their own assorted financial shenanigans and excessively ambitious expansion plans than from tightening financial conditions.

Small Planet Group, the Lithuania-based owner of the Small Planet-branded family of airlines, announced on 24 October 2018 that it was seeking bankruptcy protection. The group had already accumulated over €17 million in debt by the end of 2017.

Less than a month later, operations of the Cambodian, German, and Polish subsidiaries ceased and on 28 November 2018, after a Vilnius bankruptcy court rejected the debt restructuring deal offered by Small Planet, the civil aviation authority of Lithuania revoked Small Planet’s commercial license, effectively putting an end to the company’s operations.

Germania, a Berlin-based airline once known as SAT (Special Air Transport), announced on 8 January 2019 that it may have to liquidate “short-term” unless a buyer is found due to having accumulated heavy losses for every operating year starting in 2013 and being short on liquidity.

Germania used to be an unexciting but profitable airline until the owners fell victim to a common disease in the airline business: overexpansion. This frenzied expansion may have brought higher revenues, but completely wiped out profits and turned them into steady losses, which have oscillated between €7 million and €26 million for every year since 2013.

At the moment Germania operates 34 aircraft and has a 25 Airbus A320neo on order, and this does not include their subsidiaries, leasing-focused Bulgarian Lynx and Swiss-based Germania Flug. That’s quite a large fleet, and it was mostly built up over the past five years, exactly as competition was rising all over Europe and as European monetary policies entered full-on lunacy.

This same monetary lunacy has fueled all sorts of financial shenanigans and lent credibility to dubious business schemes that would have otherwise found nobody willing to finance them.

VLM Airlines, for example, which is already defunct. Brussels-based VLM was born in 2014, when the Air France-KLM Group decided to sell off their CityJet subsidiary to a group of private investors. These new owners split CityJet in two, with VLM Airlines becoming the leasing arm of the group. However, in late 2014, VLM Airlines became an independent entity following a management buyout and started to implement what I can only call an interesting business model: taking over routes that had been dropped by other airlines for being unprofitable and/or in low demand.

For example in February 2016 VLM took over three routes from Friedrichshafen which had been previously been operated by Intersky, a regional airline which had recently gone bankrupt.

As it turns out, those routes were dropped for a valid reason, and in May 2016 VLM Airlines entered bankruptcy protection after accumulating €6 million in debts, which may not sound like much but for a two years-old airline which at the time had just four regional airliners (two of them leased) it was too much. That should have been the end of it.

VLM’s second short life...  In September 2016, SHS Aviation, a Dutch company, announced the purchase of VLM Airlines while the industry scratched its collective head over the reasons behind this purchase.

Following an ill-judged bout of expansion which saw among other things VLM take over the remains of Thomas Cook’s Belgian operations in October 2017, the airline started to have serious liquidity issues which a desperate change of ownership in August 2018 could not solve, so in December 2018, VLM Airlines finally filed for bankruptcy.

Investors are going to be wiped out as VLM had been stripped bare of assets to raise desperately needed cash in its last year of operation.

Norwegian Air Shuttle, the airline version of Netflix, announced on 19 January 2019 the closure of its bases in Rome (Italy), Providence and Stewart (USA), Gran Canaria, Palma de Mallorca and Tenerife (all in Spain) as a cost-cutting measure. The closure of the Rome base is a particular heavy blow, as it was one of the linchpins of Norwegian’s expansion in the long-haul market. Ironically, the choice of Rome was dictated by the shaky financial conditions of Italy’s flag carrier, Alitalia, whose history and eventual bankruptcy would be well worthy of an interminable TV series with a highly convoluted plot.

And as Norwegian’s financial woes continue (2018 financial results will be released in February, as is usual with Norwegian public companies), the whole maxi-order for 95 Airbus A320neo is being “reconsidered.”

Very much like Netflix, Norwegian is a media darling that can do no wrong. The closure of these bases and the financial backing (or lack of) for such a huge aircraft order have been completely buried by a far more important piece of news: Norwegian will be upgrading the free WiFi service on many of their flights. Obviously, no mention of how a company with serious cashflow issues is going to be able to offer customers more freebies.

If you are scratching your head as to why stock markets are partying like it’s January 2018 while bad news pile up from China to Germany, look no further.

Joon… Air France announced that it is shutting down its Joon brand: The aircraft and the crews will be quietly absorbed back into Air France and the experiment hopefully forgotten. Joon operations began in December 2017.

Joon was an attempt to build a “fashionable” low cost carrier which failed miserably due to no real cost savings over any legacy carrier: Flight crews were paid exactly the same as Air France’s but were made to wear uniforms made from 60% recycled plastic, aircraft were mostly older Airbus models with ever increasing maintenance costs, and catering turned out to be a financial black hole.

Instead of either giving passengers simple prepackaged food and drinks (like Peach) or just having them pay for refreshments (like Ryanair), Joon offered a choice of highly fashionable organic food and drink, including craft beer “loaded with obscene amounts of hops” according to those who tried it.

Joon was instantly branded “a flying rooftop bar” and made the butt of endless jokes but, most critically, turned out to be an embarrassing failure for Air France’s old management, now firmly in the sights of the new CEO, Benjamin Smith (formerly of Air Canada).

And remember: In spite of all the wailing and gnashing of teeth, these are still good times. Credit conditions throughout Europe remain extraordinarily favorable and any Quantitative Tightening is still in the distant future together with any interest rate “normalization.” Passenger numbers, no doubt buoyed by incredibly low fares offered by low cost carriers, keep on rising.

But the “profitless growth” model has finally started to show its limits, and I fully expect many other airlines with questionable business models to join the Small Planet, Azur Air Germany, Primera Air and SkyWork of this world in bankruptcy court. By MC01, a frequent commenter, for WOLF STREET

Huge aircraft orders, booming traffic, dozens of upstarts with easy mega-funding, fierce competition, already a big collapse, and allegations of shady business. Read… The Wild East: Airlines in South & Southeast Asia

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  43 comments for “Low-Cost Airlines Are Crashing into Bankruptcy One After the Other as Financial Conditions Tighten in Europe

  1. HR01 says:


    Many thanks for the continued coverage of the the air transport industry. Excellent stuff.

    Looks bleak in Asia, Europe and South America. Endless cheap credit takes many more victims.

    Just wondering when the U.S. carriers start sending in cancellation notices.

    Eventually will blow some serious holes in the Boeing and Airbus order books in the next 12 to 18 months. Of the two, Airbus looks like the riskier bet.

    • Kent says:

      The US has consolidated into just 4 airlines which is just enough to collude on prices and profits.

      • Max Power says:

        Agreed. The US aviation market is very different from the European market.

        In the US the legacy carriers still rule the skies and the result is comparatively high fares (especially in small and medium sized markets) and a heavy reliance on the hub-and-spoke system to create end-to-end connections.

        In Europe the two ultra-low-cost behemoths, EasyJet and Ryanair, plus a host of smaller airlines are responsible for very low fares and lots of point-to-point routes, relying on many smaller aircraft bases which operate equipment in an “out-and-back” pattern (often with a less-than-daily frequency, and out of secondary airports). While Europe is chock full of these airlines, in the US only Allegiant truly emulates this model. It is highly profitable and its fares are usually significantly lower than other carriers’ on similar routes.

        Allegiant, Spirit and Frontier (and in the future “Moxy”) are trying to test if more of the European style ULCC can work out in the US. Time will tell if they are successful.

    • MC01 says:

      Thanks to you.

      Airbus and Boeing run no risks in the short run: Airbus has more than 6,500 A320neo on order and Boeing has over 4,800 737 Max in the orderbook. Even if orders were to be slashed in half those would be still true mind-boggling numbers. And that’s without taking the widebodies in consideration.

      Boeing did a fine mess of thing by offering 4/5 737 MAX versions (depending on whether or not the MAX 200 is a Ryanair exclusive) and that’s hurting sales.
      But the 787 is doing very well and Airbus’ continuous inability to offer a competitive purpose-built cargo makes the 777F, the 747-8F and even the old 767F reliable breadwinners.
      I reserve judgment on 777X though because the excessive enthusiasm reminds me a bit of that surrounding the A380 when it was in a similar stage of development.

      • Realist says:

        Apparently the problems experienced by Norwegian did become visible with their opening of low fare flights to the USA and aquiring of 787’s, causing passengers to be stranded for days in the US due to technical problems with the 787 and Norwegian thus having to rely on older ( and more expensive to run ) aircrafts for their transatlantic services. The Brits tried several times to put up offers for Norwegian, but failed, now the Brits apprently have changed their mind about Norwegian.

        • MC01 says:

          The problems experienced on 787’s were only Rolls-Royce Trent 1000 engined aircraft alone and was due to a reduction in inspection interval and ETOPS related to fatigue cracking in the compressor blades.
          Rolls-Royce initially underestimated the financial impact of this fiasco and will lose at least £1 billion when all is said and done.

          Only 30% of 787 use Trent engines and RR had better pray this is the end of it because if the same problem manifests itself on other Trent versions this thing will cost them a fortune.

      • Olivier says:

        What is the current manufacturing capacity of Boeing and Airbus? My guess is that it’s way less than what would be needed to work through their bloated order books in any reasonable time frame yet AFAIK they are not expanding their facilities. In other words management at both companies has already “priced in” the fact that many of these orders will never materialize and both companies will be fine.

        The real threat to them is China’s imminent entry into the sector, I would say. At that point there goes the last uncontested crown jewel of western industry. What’s the status on that?

        • MC01 says:

          Boeing presently has a monthly capacity of 47 737 (both NG and MAX) at the Renton plant. This is the only plant assembling 737’s at the moment.
          The much heralded “Boeing factory in China” is actually used merely to fit the interiors of part of Mainland Asia-bound 737’s, not to assemble the aircraft itself.

          Airbus presently has four sites dedicated to the final assembly of the A320 family: Blagnac (Toulouse), Hamburg, Tianjin and Mobile. Hamburg is the main assembly site with four lines.
          Airbus expects all four combined sites put together to have a monthly capacity of 60 A320 by the end of Q2 2019 and hopes for 70+/month production by 2022.
          However engine manufacturers have serious doubts being able to keep up with that pace: Pratt & Whitney in particular is very worried, perhaps because their executives have good knowledge of overambitious defense program fiascos (read: aircraft parked for months waiting for engines and engines sitting in shipping containers for months waiting for aircraft).

          To be honest I am convinced people are seeing too much in China’s efforts in the field.
          First priority is allocated to military programs and commercial gets the breadcrumbs, so much COMAC is having their much hyped widebody designed by UAC, the organization which includes among others the Sukhoi, Ilyushin and Tupolev design bureaus (OKB).
          The problem however will be seeing what engine they’ll use: the indigenous ACAE CJ-1000 is at least 8 years behind schedule and presumably grossly over budget (no financial data have been printed to my knowledge). Using a foreign engine is not a serious option due to the aforementioned production constraints, unless of course production is intended to run in the dozens and not in the hundreds.

  2. Si says:

    This is a fascinating story. Your article on the growth in Asia was mind boggling. I know someone involved in aircraft leasing and his view was that it is all growth going forward. I can’t see how it can be giving that it seems that ‘low cost’ seems to be a euphemism for ‘no profit’ in most cases.

    I was staggered at the numbers on the order books for Airbus and Boeing. Great reporting Wolf!

    • MC01 says:

      Growth depends on the airlines’ ability to keep on offering fares as low (or even lower) than present ones and that ability is not easy to achieve.
      You can either opt for the Ryanair strategy (relentless cost-slashing to achieve profitable status, even if this hurts your image) or for the Norwegian strategy (find investors willing to fund your operations even if you have no path to profitability).

      On top of this I strongly suspect those accounting shenanigans Wolf Street chronicled a few days back to be very widespread among Asian airlines. See how HNA Group went from throwing money around like confetti to quarrelling with Airbus over six measly A330ceo and threatening to sue anybody questioning their financial stability.
      Don’t worry: as I always say they won’t go bankrupt. Not until the government in Beijing says so. ;-)

      South America is a very interesting market right now due to a recent spate of liberalizations, and casualties are already piling up. But that’s another story for another day.maybe.

      • MCH says:

        Say what you will about O’Leary, but he is a survivor. Especially given how ridiculous and cutthroat the European LCC market has become. There are certain airlines I’ll never fly, Ryanair, Easyjet, and all of carriers whom I’ve never heard of before, just give me the legacy European airlines who are hooked up with the three alliances, and I’m happy.

        I wonder how prominent Brexit is figuring in the minds of guys like O’Leary, because he must be assuming the worst case scenario to buy something like a Laudamotion. (I didn’t even know such an airline existed until this article) For him, it must be about diversification, diversification, diversification.

        I think that of all of the LCCs, Ryan and Easy Jet are the only ones that are really playing the long game. They can probably stand a few losing quarters, and still come out ahead amongst the wreckage of all of the other LCCs. Both those companies are also very shrewd negotiators, I remember how O’Leary got his way with the MAX, and what Easyjet did to get the NEOs. They literally just had to wag their fingers at Boeing and Airbus, and neither of then could afford to lose such a major customer.

        Now, common sense told you that neither of those were going to switch, but just the threat itself is enough. Just like how Alaska is leveraging the A320s from Virgin to get better deals from Boeing, you know that has to be happening.

  3. HMG says:

    The one ‘proven’ method for an Airline in financial difficulties to solve its problems seems to be order as many new planes as possible.

    Why not wait and buy up some half price distressed assets from another troubled Airline further down the bankruptcy route ?

    • MC01 says:

      To answer briefly.

      When you order, say, 20 A320neo from Airbus you are given a very detailed delivery schedule you can build your operations around. If you are really in a hurry you can contact other Airbus customers and ask them to swap their deliveries lot with you (usually this involves cash) or try to get those open slots all aircraft manufacturers keep to sweeten larger deals and/or to reward good customers.

      But you never know when another airline is going to cease operations and, when it does, perhaps all that’s available are leased aircraft which the lessor will try to get back at first opportunity.
      And if aircraft are brand new (meaning with great fule economy and low maintenance/insurance costs) they won’t stay available for long.
      To give you an example when Primera Air of Denmark ceased operation early last October they had six A321neo in service. These aircraft are hot commodities and by the end of the year all but one had been sold.
      That’s why creditors love brand new aircraft as collaterals: they sell quick and they sell well.

      • HMG says:

        Thanks for the explanation.

        In the Motor Trade there are cars referred to as ‘Pre-reg’.
        These are new cars but already Government ‘registered’ so legally they are second hand.

        No other product I know of enables the manufacturers to distort and manipulate the market with the help of this Government backed anomaly which results in greater price discrimination than would otherwise be the case.

        Most used or nearly new products are valued on mileage, hours recorded or year of manufacture but with cars it’s different.

        That aside you say that nearly new planes are traded close to a true ‘price discovery’ market.

        As Sir Michael Caine might say “not a lot of people know that”.

  4. Tinky says:

    Thanks for the interesting focus on airlines, MC01.

    Though obviously anecdotal, my experience in Europe is that the Ryanair experience is typically poor, along with the smaller short-haul carriers. In contrast, EASYJET is consistently excellent, and it’s a mystery to me why anyone would choose the former when routes overlap.

    • MC01 says:

      What I am about to say have won me no friends so read at your own risk.

      There’s nothing wrong with Ryanair: they are not holding a gun to your head and telling you to fly with them, or else.
      The problem is with the passengers who buy a £20 ticket and expect, nay demand, to fly business class with Cathay Pacific for that money. Since Ryanair is routinely the cheapest airline, it routinely attracts this crowd of peculiar characters.

      Everything comes with a price attached.

      • Rob73 says:

        As we are sometimes joking:
        “The only one who’s paying on a Ryanair flight is the guy/gal in the right hand seat.” Unfortunately – this is not too far from the truth.

  5. HowNow says:

    Thanks again, MC01, for another fascinating article.

    I’m trying to understand why anyone would consider buying into or serving as an executive for one of those airlines. Is it legal, in Europe, to take a gi-normous “short” position while serving as a CEO?

    • MC01 says:

      These zombie companies are overwhelmingly privately held, so no chance to short them.
      However let’s just say that rather generous compensation packages will make most people rather receptive to job offers. ;-)

  6. 2banana says:

    And this is with fairly low oil and fuel costs…

  7. Paulo says:

    Of course they are going down the tubes, just like every type of company/organization in the race to the bottom who tries to make up for shrinking and tight margins with volume and cost-cutting.

    I started out in aviation at age 19, declining to head for the airlines because I could not even contemplate living in a city or suburb. (stuck with contract utility work and did well). Regardless, most of my friends did go that route and worked for either CPAir or Air Canada. Then came deregulation and small regionals/charter companies were ‘taken over’. A more recent arrival like Westjet started out with lots of vim and vigour, and I looked on with amusement a few years ago as my commuting friends switched back to Air Canada, saying, “I’m just tired of all the clever little jokes and phony energy. I just want to fly to _______ in a decent machine with qualified flight crew.”

    And there in lies the rub. In Canada, Transport Canada, because of Conservative Govt cutbacks, has basically aceeded all oversight to the companies themselves and their in-house maintenance programs. Then along come the low-cost startups, owned by people with money who want to play airline. How do they do this? Lower priced staff, including flight crew. Leased aircraft. Contract maintenance. etc etc etc. Then, pilots get tired of working for 30% less and being laughed at by the other walking zippers towing their wheeled luggage through the terminals. They unionize, and if the company survives paying the going rates, they may or may not survive.

    To the flying public, do you really think it’s such a great deal to ‘score’ a (cost) 100 euro ticket from London to Canary Islands? Really? (I know someone who did). Americans…do you really want to fly on a ‘partner’ aviation company who’s flight crew is on food stamps? I don’t.

    I recently flew to Edmonton. We traveled Air Canada and it cost what it cost. I watched with amusement the ‘Flair Air’ machines parked at the gates, knowing full well a horde of deal seeking vacationers would soon be boarding an aircraft operated by new crew trying to break into the airlines. Here are some reviews of this low-cost startup with the ultra cheap fares. Read it and weep.

    You get what you pay for, folks. My question is why would someone want to strap their ass into an aluminum cigar tube flying at 600 mph at 35,000 feet, operated by a crew being paid 30-40-50% of the going rate, with the lowest priced contract maintenance available on bid, with flight attendants being paid less than minimum wage….(the same attendent tasked with emergency egress duties should you survive a ‘mishap’). Don’t beileeve me? “Some WestJet flight attendants are claiming the airline routinely pays its cabin crew less than minimum wage, since they are only paid for the amount of time they spend in the air, not their time at work.” https://www.cbc.ca/news/business/westjet-minimum-wage-cupe-cfau-1.4575681

    Hey, I hear there are great surgeons practising psychic surgery in the Phillipines. Diagnosed with _________? No problem, just hop on that new low-cost startup and fly to Manilla. Tumour removed at a fraction of a hospital stay. https://en.wikipedia.org/wiki/Psychic_surgery

    • Iamafan says:


      There is no low-cost startup airline from the USA to Manila, Philippines; although the Chinese airlines usually are the cheapest.

      And, I suggest you do not believe the quacks. They have a special term for physic healing in that place of the world. Too weird for me.

    • HowNow says:

      I usually have high regard for your comments, but not this one. “You get what you pay for” is simply not true. Sometimes, yes, but frequently no.

      • Tinky says:


        As mentioned in my previous comment (above), EasyJet is excellent, and I believe that their pilots are typically quite good.

        Their newest airbus planes are equipped with Recaro seats, which are superior to the vast majority that I find on more expensive airlines, their inability to recline notwithstanding.

    • MD says:

      If you’re really lucky, you’ll get a noob as P2 who’s got a fresh CPL/IR, 250 hours, a few hours on the sim and whose rich parents have stumped up for him/her to do ‘line training’ in a A320/737.

      Pay to fly – always ensures hiring the best!

    • john says:

      You are confusing a lot of things.
      Doctor pay is based on where they practice. It’s dependant on the payer system and customers have little choice in the matter (short of non insurance covered stuff like plastic surgery).
      Pilots on the other hand are completely interchangeable.
      I fly in Asia all the time, and Europe, and Caribbean, and south America. Coshared flights make it sometimes not even knoweable what airline is flying that day.
      And you know what? I couldn’t care less. The Delta pilot will make 200k and the Thai pilot 60k: no f. cking difference as far as I’m concerned.
      I don’t even know who’s in the driver’s seat. And don’t care.
      And because the flights originate/arrive from different points it is the customer’s benefit to get the cheapest. Just the opposite of medicine.
      As far as regionals in the US, yes some make very little, like 40k and you know what? no f.cking difference either. Again who even knows who’s who? They just drive the bus. Unionization is a scheme to siphon money, not to protect the clients.
      Air Canada would not be my first choice at all. Same as AirItalia or AirIndia. Bad bad service. Arrogant crew. Laziness all around.
      Canada has bad medicine and bad airlines. In fact … well let’s remain polite, they suffer enough already, especially in January.

      • Paulo says:

        I take back my comment about you get what you pay for.

        “The U.S. spent 15.3% of GDP on healthcare in that year; Canada spent 10.0%. In 2006, 70% of healthcare spending in Canada was financed by government, versus 46% in the United States. … Some of the noted differences were a higher life expectancy in Canada, as well as a lower infant mortality rate than the United States.” (WIKI)

        However, I stand by my comments on flight crew pay and experience. I know many many airline pilots and a few who work for the low costers. The drivers working for low cost airlines are not there by choice and will leave as soon as possible for a seat in the Majors. It is a stepping stone, pure and simple, and yes you do get what you pay for in aviation. If you know how the internal operations of airline companies work, and how aviation companies in general work, you do not want to fly with the brand Xs of the World.

        Regardless, I have taken my last flight, ever, unless one of my friends sets down at my place and picks me up for some reason or another. The entire experience is dreadful, and it takes a horrible toll on the environment. I believe I will see its demise in my lifetime.

        This is interesting from Nat Geo, and well worth the short read on how tourism is affecting the World.


        • char says:

          So Canada government spends 7% and America government spends 7.04% of GDP on healthcare.

  8. raxadian says:

    As soon as investors start to fear for their profits, it will be game over for a lot of companies faster than expected and short term at least, that might cause some transportation problems.

    And is not just companies debt, Italy and Spain national debts are nothing we should be ignoring on the Euro Zone.

    Not to mention the full effects of Brexit are comming this year.

    Overall I say this will a bad year for the Eurozone economics or at least a year to be careful if you don’t wanna step on sinholes.

  9. nick kelly says:

    ‘At the moment Germania operates 34 aircraft and has a 25 Airbus A320neo on order..’

    At first I assumed this meant an order for a single plane, oddly called a
    ’25 Airbus320′. This reading was in the context of a marginal operation only operating 36 older planes.

    Then it becomes clear I misunderstood as the Norway line has (had?) a maxi order for 95 Airbus 320! So I guess Germania had actually ordered 25 new planes.

    Jesus. When did this start? I’m using 30 mil per plane as a very rough guide. (This is because the only plane price I know off the top is the 20 million per for Delta’s A 220 that caused Boeing to wig out.)

    How were two outfits, marginal at the time and now probably terminal, ever able to order 750 million and 2.8 billion worth of planes? Surely AB doesn’t start work on 120 planes based on these pipe dreams?

    Obviously there would be a schedule for delivery over many months with planes leaving as money arrives but while knowing little about this I would think there must be some initial spending by Airbus, IF the order is taken seriously (buildings?)

    Did Airbus take the order seriously? Was the engine supplier given an order for 240 engines? Then there is the question of interpreting Airbus’s financials. Now they have a 3.5 billion dollar order, now they don’t.

    This stuff makes the gyrations in US large truck orders seem conservative.

    • Stan6565 says:

      Airbus are threatening to leave U.K. if we deliver a Brexit that is not to their liking.
      Maybe they won’t need any new wings manufactured anyway.
      Once the aeronautical musical chairs’ game fuelled (pun intended), by imaginary money, stops.

      • MC01 says:

        Intriguing how Airbus has elevators, rudders and several composite material panels for the A350 manufactured in Harbin, China, by a joint venture they have with the Chinese government, of all people.
        Maybe they can have wing assemblies manufactured in Harbin as well?

      • fajensen says:

        Maybe they wanted to upgrade their production equipment and simplify their logistics for some time already and then comes Brexit and makes it a no-brainer?

        Brexiteers should be more happy. They are getting what they wanted. Even if “Brexit is betrayed” they are getting the betrayal they wanted!

  10. Iamafan says:

    MC01 Great article! Can you tell us where all the money is coming from. Can they service their debts?

    • MC01 says:

      Private pension funds, private equity, venture capitalists, private/regional banks… all attracted by the somewhat higher returns on loans which however do not reflect risks even in the present monetary environment, at least not at this level of overcapacity and competition. But things are (slowly) changing. Somebody may also hope to stumble upon the next Ryanair, albeit chances in the present environment are slim to say the least.

      Can these companies service their debts? As Small Planet proved they surely can until suddenly they can’t. My favorite whipping boy, Norwegian, has been performing true feats of financial acrobatics in 2018, from tapping into private banking funding (unusual for an airline that large) to selling aircraft and leasing them back.

      Leaving aside profitable companies like Ryanair and EasyJet and PE darlings such as Wizz most airlines are constantly flirting with serious liquidity problems. Their flights may be packed, but what good does it do if they operate at a loss?

  11. Mike G says:

    I don’t know what possessed Norwegian to open a route to Stewart. This is a town of about 500 people in northwestern British Columbia, the middle of nowhere. I can’t imagine more than a trickle of tourism there even in the summer.

    • Max Power says:

      I think that’s a typo. Probably meant to say Stewart, NY – about an hour north of NYC. Norwegian will be pulling out of that airport by April.

      • MC01 says:

        Yes, that’s Stewart NY. It slipped in from a previous draft, sorry everyone.

        Still asking what possessed them to open those routes is a valid question.

        • Wolf Richter says:

          Thanks. Fixed.

        • char says:

          It got that Ryanair Barcelona or Brussels feeling.

          Landing slot are likely available. It is probably much cheaper than a real New York airport, may even follow Ryanair lead and ask for money. And it is the seems to me to be the best way to get from Edinburgh to New York.

  12. Tyson Bryan says:

    How many man-distance-hours of air travel will a fiat unit purchase ? Time is money; so is travel distance. People like to travel:- as fast as possible. Oil / fuel costs are already subsidized or controlled in most countries. The decision has apparently been made by several Central Banks to index and back the value of their national currencies to human air time travel (i.e. time & distance traveled per unit currency). The idea of backing your currency with air service may be new to many, but it’s happening now.

  13. Leser says:

    Fantastic article MC01 with such a wealth of information! Kudos to Wolf for allowing guest authors. I’m a big fan of this site, like the early-days Zerohedge.

  14. JimH says:

    Thanks and a question re: Norwegian. They seem to be less fly-by-night-y than some others (Ryanair excepted.) Kjos appears to have considerable aviation industry experience. Of course within Europe they’re competing with lots of others. I noticed some months back after they had started service to Buenos Aires were also beginning to add flights within the country. My only experience with them involved OAK -> OSL, OSL->WAW, BUD->CPH, CPH->OAK. The first leg was hours late arriving and departing so that at Gardermoen the last flight to WAW had departed. They quickly put me up at a nearby airport hotel, seems as if they were wel practiced at that though I wondered about the effect on their bottom line. Both domestic legs were on time. The return from CPH was delayed, again the aircraft was hours late from LAX to CPH. I assumed it had to do with the RR Trent issue, that Norwegian’s utilization didn’t account for nearly new planes needing to be taken out of service for engine replacement. Any thoughts/opinions about the viability of Norwegian’s long haul operation?

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