Flight ban for boeing jets: tui expects profit slump

Flight ban for boeing jets: tui expects profit slump

The flight bans for boeing’s medium-haul 737 max jet are thwarting the already capped profit plans of global travel group tui.

Because the company has to rent replacement aircraft in series, tui chief executive fritz joussen expects significant losses for the current fiscal year through the end of september. In the end, operating profit could slump by more than a quarter, the travel group announced in hanover.

Investors on the stock exchange anticipated the slump in profits. The tui share price fell by more than ten percent in london this morning and was recently down by a good eight percent. Since the beginning of the year, the share has lost more than one-third of its value.

Tui has 15 boeing 737 max series aircraft in its fleet – at its airlines in the uk, belgium and the netherlands. By the end of may, the group had originally planned to add eight more of the series to its fleet – including at its german subsidiary tuifly, which does not yet own any aircraft of the type.

After two plane crashes at the airlines lion air and ethiopian with 346 fatalities, aviation authorities all over the world have recently imposed flight bans for the aircraft of the series. Delivery of new aircraft has also been halted.

Since an end to the flight bans is not yet in sight, tui’s management has calculated two scenarios. If the planes are allowed to fly again by mid-july, this is expected to impact operating profit (adjusted ebita) by around 200 million euros. If the flight bans were to remain in place for longer, they would add another 100 million euros in costs.

Tui explained this with the extension of existing aircraft leasing contracts, costs for renting additional replacement aircraft and the costs for reorganization. In addition, the group will probably have to spend more money on fuel than expected: boeing’s 737 max jets consume significantly less kerosene than older aircraft such as the predecessor boeing 737 NG. Without the new aircraft, tui will have to operate more aircraft with higher fuel consumption.

The additional costs have an impact on the group’s operating profit. In the more favorable case – when the planes are allowed to take off again by mid-july at the latest – earnings could fall by 17 percent in the current financial year from just under 1.2 billion euros, according to tui’s calculations. If the flight bans last longer, operating profit will drop by as much as 26 percent.

Tui chief executive joussen had already cut his profit forecast at the beginning of february. Due to the continuing trend towards last-minute bookings and the impact of the brexit on bookings from the uk, operating profit should only stagnate since then. Originally, the management board had envisaged an increase of ten percent before the effects of currency fluctuations.

Meanwhile, boeing has unveiled an urgently awaited update to its MCAS control software, which has come under fire following the two plane crashes. After the fatal accidents, criticism and the need for clarification remain high. In addition to the software update, which has yet to be approved by regulators, boeing plans to enhance the safety of its 737-max series of ill-fated aircraft with more cockpit alerts and additional training for pilots.

Tui would not comment on the extent to which it is claiming the additional costs of the flight bans from boeing. However, the company is in direct contact with the aircraft manufacturer on all issues, a spokesman said. Shortly after the flight bans were imposed, norwegian, the low-cost airline, announced claims for damages against boeing.

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