Norwegian Air Cancels 97 Boeing Aircraft, Seeks Compensation

Norwegian Air said it cancelled orders for 97 Boeing Co. (BA) aircraft and has filed compensation claims related to the grounding of the plane maker’s 737 MAX and the 787 engine issues.

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Shares dropped 3.1% to $188.50 in Tuesday’s pre-market trading. The Oslo-based air carrier terminated its purchase agreements of 5 Boeing 787 aircraft, 92 Boeing 737 MAX aircraft and the so-called GoldCare service agreements (BSG) related to the 787 and MAX aircraft.

In addition, Norwegian said it filed a legal claim seeking the return of pre-delivery payments (PDP) and compensation for losses it incurred due to the grounding of the 737 MAX jets and the engine issues on the 787. Boeing’s 737 MAX aircraft have been grounded since March 2019 following a second crash. The plane maker on Monday started flight tests of the 737 MAX to try and receive regulatory approval for it to return to fly.

Furthermore, Norwegian’s Rolls-Royce Trent 1000-powered 787 aircraft have suffered from long-running problems that have affected reliability and resulted in disrupted operations causing significant losses.

The air carrier said that it is in talks with Boeing to resolve its 787 and 737 MAX issues and obtain compensation for its losses but no agreement has yet been reached.

The coronavirus travel restrictions have resulted in a deep cut in the number of commercial jets and services Boeing customers need over the next few years. As such, global airlines suffering billions of dollars in losses have been seeking to cancel or delay some of the orders they have with Boeing. COVID-19 has hit the plane maker very hard, with shares still down 40% since the beginning of the year.

However over the past month, the stock regained some of its losses surging 33% amid investor sentiment that the pandemic restrictions will gradually be loosened and some travel will start to resume.

Berenberg Bank analyst Andrew Gollan last week downgraded Boeing’s stock rating to Sell from Hold with a $150 price target (23% downside potential), saying that investors have been too optimistic suggesting that shares have gone too far too fast.

“The market’s recent exuberance for reopening economies and an early resumption in air traffic has driven a strong rebound in aerospace shares,” Gollan wrote in a note to investors. “We suggest investors lock in any gains.”

Overall, Wall Street analysts are cautiously optimistic on the stock. Seven Buys, 6 Holds, and 2 Sell ratings give Boeing a Moderate Buy analyst consensus. The $191.31 average analyst price target implies 1.6% downside potential in the shares over the coming year. (See Boeing stock analysis on TipRanks).