On the heels of a significant economic blow from the suspension of global cruises due to the COVID-19 pandemic, Norwegian Cruise Line Holdings has had to launch a serious cost-cutting mission to stay afloat.
In its latest business update, the cruise line company said that it was targeting a $515 million worth reduction in capital expenditures.
A significant portion of that figure, namely $345 million has been attributed to non-newbuild capital expenditures for 2020. A total of $170 million is assigned to reduced and deferred Capex for newbuild related payments through March 31, 2021 which the company is currently finalizing.
Specifically, Export Credit Agencies (ECA) and NCL have already secured deferral of approximately $385 million of payments related to guaranteed financing by Euler Hermes Aktiengesellschaft (Hermes) through April 2021. The cruise ship owner is also the process of finalizing the deferral of the remaining approximately $155 million of payments with its other ECA lenders.
Upon completion, NCL’s next newbuild related payments would not be until April 2021. The cruise liner company plans to introduce ten additional ships through 2027.
Other options to defer debt and refinance are also being reviewed.
To remind, back in March Norwegian secured a $675 million revolving credit facility and fully drew its existing $875 million loan pushing the total liquidity to $1.55 billion.
“Our quick action to proactively and aggressively implement initiatives to preserve cash and enhance liquidity in this uncertain and fluid environment puts us in a stronger position to withstand the adverse financial effects of COVID-19,” said Mark A. Kempa, executive vice president, and chief financial officer of Norwegian Cruise Line Holdings.
“We will not only benefit from the actions taken to strengthen our liquidity profile but will also benefit from a period of reduced capital expenditures with no newbuild deliveries until at least mid-2022.”
On the cost-cutting side, NCL said that all of its 28 cruise ships are being put in cold layups. Other initiatives include a company-wide hiring freeze, shortened working hours, and a 20 % salary cut for shoreside employees.
NCL’s estimated ongoing ship operating expenses and administrative operating costs are set to range between $70 million to $110 million per month during the suspension of operations.
If the temporary suspension of sailings is further extended, the Norwegian’s liquidity and financial position would likely continue to be significantly impacted.
Even though the exact financial estimate cannot be made at this time, Norwegian expects to report a net loss on both a U.S. GAAP and adjusted basis for the first quarter of 2020 and the full year.
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