Crisis Forces Re-Assessment of ‘Long-Term’ Contracts

The maintenance agreement for the fleet of 90 Boeing 737NG aircraft is for another five years.
Credit: Norwegian

Lufthansa Technik has some rare cause for celebration in the current crisis after extending its 737NG base maintenance support agreement with Norwegian for another five years.

But while any contract win during the current crisis is cause for cheer, the smiles at Lufthansa Technik may well be rueful given Norwegian’s precarious health.

Leaving aside the question of whether the airline will still exist in one year’s time—let alone five—it is also uncertain how many of the carrier’s 90-aircraft Boeing 737NG fleet will remain with it.

Having cancelled orders for 92 737 MAX aircraft, Norwegian clearly intends to rely on the 737NG for the foreseeable future, but many units are probably at risk of being returned at lease end—or earlier.

For now, the airline has reached an extraordinary debt-for-equity arrangement whereby most of its lessors have, combined, become its majority owner. This should see Norwegian through the next nine months, but business would have to pick up sharply thereafter if lessors are not to run out of patience.

As things stand, the airline is in a period of “hibernation,” under which it plans to run a skeleton service until April 2021 and then build up to a 100-plus-aircraft operation in 2022.

However, even if this all goes to plan—which analysts say is highly uncertain—Norwegian’s strategy means that any flight-hour-based element of its overhaul contract with Lufthansa Technik would be worth much less than normal.

Aviation Week was not able to immediately ascertain whether such an element exists. Lufthansa Technik says that the main characteristics of its "Total Base Maintenance Support" are 
the guaranteed availability of layovers and a commercial service package geared to individual customer needs.

It intends to induct the first Norwegian 737 under the new heavy maintenance contract at its Budapest facility in September 2020. Further overhauls are also to be performed in Budapest.