Business Essentials for Professionals


TUI Warns Of $200 Million Hit Due To Grounding Of Boeing MAX 737s

TUI Warns Of $200 Million Hit Due To Grounding Of Boeing MAX 737s
Warnings of profits being hit was issued by Anglo-German tour operator TUI which uses Boeing 737 MAX aircrafts in its business and which has been hit because of a worldwide grounding of the crafts following the Ethiopian plane crash.
It expected that the Boeing 737 MAX crafts would remain grounded till at least the middle of July and the company is making plans keeping that in mind, TUI said. This grounding of some of its crafts would cost the company more than 200 million euros or $224 million in core profit, along with “considerable uncertainty” about the planes being able to fly again.
Boeing 737 MAX crafts were grounded across the world, first by dozens of countries and airlines across and then by Boeing itself, following two fatal crashes within a span of five months involving the same Boeing 737 MAX crafts model. Recently, Boeing has said that it would soon be able to introduce a software fix that it hopes would be able to resolve a problem that was common to both the crashes and probably the cause of both the crashes. Experts and investigators have been focusing on the new anti-stall software known as MCAS that had been installed in both of the crashed planes. .
According to a recent report by the Wall Street Journal said, citing people briefed on the matter, a preliminary conclusion has already been arrived at by the investigators probing the March 10 Ethiopian Airlines that before the plane had hit the ground, the anti-stall system had been automatically activated.
No official report has yet been published about the crash by Ethiopian investigators and there is yet no conclusive evidence of a link with the Ethiopian crash, in which 157 people were killed, and the Lion Air crash in which 189 people were killed.
TUI said on Friday that it was expecting the its Boeing 737 MAX planes would remain grounded at least until the middle of July this year and is making plans for the same because Boeing has not yet announced any date when it would implement the software modifications and there is also no clarity about when those modifications would be accepted and cleared by regulators in the united States and Europe.
Warning of hit to business because of the grounding of the Boeing 7237 MAX has also been announced by a number of other airlines including the Southwest Airlines – which is the biggest operator of 737 MAXs in the world, United Airlines and Air Canada.
There are 15 MAX 737s with TUI which is just 10 per cent of its total fleet size. The company has said that it would have to incur additional costs in lieu of arranging for replacement aircrafts, increased costs for fuel, other disruption and negative trading impact. The announcement sent the shares of the company tumbling by more than 10 per cent.
“Should it not become clear within the coming weeks that flying the 737 MAX will resume by mid-July, TUI will need to extend the above-mentioned measures until the end of the summer season,” which would hit profits by another 100 million euros, the company said.
The estimate of the duration of the grounding of the MAX 737s was reduced from three months to two months by Morningstar analyst Chris Higgins on Thursday. This scale down was based on the proposed fix for the MCAS software problem of the MAX 737 that has been presented Boeing.
“We’ve revised our base-case timeline for the groundings to around two months because this MCAS fix appears mature, the MCAS upgrade should only take one hour per plane, and the updates will not require significant training,” he wrote in a note.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc