TUI 2Q Net Loss Widened as Idled Boeing MAX Takes Toll on Earnings
May 15 2019 - 5:24AM
Dow Jones News
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)
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