Norwegian leases A340-300 to bridge the B787 gap

Norwegian will wet-lease two A340-300 from HiFly to bridge the gap until the B787-8 will arrive after the battery problem is solved. How will that impact their operations? Interestingly, the two A340 are from a batch originally flown by Singapore Airlines, then given back to Boeing in exchange for B777’s. Boeing sold them to BBAM and they leased the aircraft to Emirates. The two A340-300 are now due to arrive at HiFly. So in the end Boeing has to lease Airbus aircraft to airline customers to make up the problems with the B787.

But what does that mean for Norwegian?

First, the A340-300 is considerably larger than the B787-8. The B787 in the Norwegian configuration will get 291 seats. 32 seats in a 2-3-2 configuration and 46” pith and 259 seats in a 3-3-3 configuration and 31” pitch. The A340-300 could offer an additional 45 seats in economy in a 2-4-2 configuration and actually wider seats.

But there comes of course a higher fuel burn with the A340-300: using the full PIANO 4.1 version on my iMac, I get a fuel  burn of 96,568lbs for the 3,187nm great circle route from Oslo to New York.

The B787-8 for Norwegian are not  from the first batch of aircraft but still are overweight by probably around 4 metric tonnes . The engines (RR Trent 1000 in this case) are probably Package B standard, short of the original SFC target by around 2%. The result: 68,761lbs.

So the A340-300 burns 40% more fuel than the B787-8, carrying 15% more passengers.

Per passenger, the A340-300 burns 287.4lbs or 42.9 gallons of fuel. At a cost of $3.20 per gallon, the fuel bill per passenger is $137.30.

The B787-8 burns 236.3lbs or 35.3 gallons of fuel. This is $113 per passenger.  The difference is $24.3.

This is all for a 100% load factor. With a more realistic (but still very good) load factor of 90% we get the following figures:

A340-300: 93,267lbs total fuel burn;  46.1 gallons per passenger (302 passengers).

B787-8:     67,568 lbs total fuel burn;  38.5 gallons per passenger (262 passengers).

The difference per passenger is the same:7.6 gallons or  $24.3. The question now is: who will cover the cost? Most probably: Boeing.

As mentioned, the A340-300 will be wet-leased from HiFly. HiFly is leasing the aircraft from Boeing and this would then by a dry-lease. Leasing rates for an A340-300 are between $150k and $440k, another source puts the price per month between $230k and $600k. As the aircraft in question are rather old I would suggest a price at the lower end. Let’s say the dry lease rate would be $250,000. The difference for the wet-lease is more or less the operating cost (fuel, crew and maintenance).

On the other hand, a dry lease for a B787-8 is calculated at approximately $1million per month.

Without having flown a mile, the A430-300 is “cheaper” by a quarter million dollars per month. But for every passenger flown from Oslo to JFK or vice versa, the A340-300 looses $24.3 against the B787-8. So how many passengers are flown in  a month? The aircraft will fly once back and forth per day, so with the 90% load factor the A340-300 would carry 30 x 2 x 302 passengers = 18,120 passengers per month. The extra cost for fuel is 18,120 x $24.3 = $440,316. So after fuel costs the A340-300 is still almost $310,000 cheaper. Maintenance costs will eat into this, also higher landing fees, but in the end it could be cheaper for Norwegian.

For Boeing, on the other hand, it could be expensive. ILFC will probably demand at least the  “profit portion” (what stays at ILFC after what they pay for their financing the aircraft) of the $1m lease rate it does not get from Norwegian monthly as long as the aircraft are not delivered. Let’s say ILFC has a profit margin of 10% or $100k per month (ALC reported pre-tax profit magi of 24% in 2011!). Now image Boeing has to pay for every B787 not delivered $100k during the battery crisis $100k per month. Also airlines with B787 already in the fleet will demand compensation. This could end up with a big number…