TUI 2Q Net Loss Widened as Idled Boeing MAX Takes Toll on Earnings

Date : 05/15/2019 @ 10:24AM
Source : Dow Jones News

TUI 2Q Net Loss Widened as Idled Boeing MAX Takes Toll on Earnings

   By Robert Wall 
 

European tour operator TUI AG, one of the region's biggest operators of Boeing Co. 737 MAX jetliners before the fleet's global grounding, said Wednesday that second-quarter earnings declined sharply, in part reflecting costs from the idled planes.

TUI reported a 175.1 million euro ($196.5 million) net loss for the January through March period, 23% below the year-earlier period. In addition to costs linked to the idling of its 15 MAX planes, TUI said the late timing in April of the busy Easter travel period, concerns over Britain's potential departure from the European Union and overcapacity in the Spanish vacation market also dented demand.

Boeing's MAX planes were grounded worldwide over safety concerns two months ago after the second of two fatal crashes involving the model within less than five months. The accidents in Indonesia and Ethiopia killed all 346 passengers and crew on the two flights.

TUI hopes by the end of May to get more clarity on how soon the MAX may be able to resume flying, Chief Executive Fritz Joussen told reporters. If the MAX isn't cleared to fly soon, TUI will have to extend plane rental agreements to take passengers to their destinations through the entire busy summer season.

It is not clear when the MAX may fly again, Mr. Joussen says. For now, TUI is still holding out the possibility of resuming MAX operations mid-July, he added.

Boeing is seeking approval from the U.S. Federal Aviation Administration for a fix to a flight-control system implicated in both crashes. The FAA has not said when it will clear the plane to fly again. European regulators, who would need to clear the plane for TUI to resume operations, have said they will give the MAX close scrutiny before it is allowed to carry passengers again.

The FAA next week plans to brief foreign regulators on its plans for reviewing the MAX changes. Mr. Joussen said that meeting could provide clarity on how long the fleet will have to remain parked and which earnings scenario for TUI is most likely.

Mr. Joussen said the heightened regulatory scrutiny will likely make the MAX "the most tested aircraft at a certain point of time."

Most of TUI's costs from the MAX grounding will fall in the second half of this year after the second quarter's EUR5 million hit. TUI estimates the costs of disruptions will be around EUR200 million if the MAX can resume flying in mid-July. If the fleet is idled through September the financial hit would increase by another EUR100 million.

TUI, after the MAX grounding, had already warned earnings would be affected, and had cut its full-year outlook. The company faces higher costs from renting replacement planes that are less fuel efficient and other disruptions costs linked to the MAX situation

TUI said it is due to receive eight more MAX planes once the fleet is cleared to fly again. Mr. Joussen said TUI will decide at a later point when it now would take the plane.

Mr. Joussen said he expected "good and fruitful discussions" with Boeing about compensation for the financial hit. But, he added, those talks aren't top priority at the moment.

Norwegian Air Shuttle ASA, another big MAX customer, has already said it is seeking compensation from Boeing for disruption costs. Other airlines also have said they expect the Chicago-based plane maker to cover losses.

 

Write to Robert Wall at robert.wall@wsj.com

 

(END) Dow Jones Newswires

May 15, 2019 05:09 ET (09:09 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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