How will TUI’s grounded Boeing 737 MAX fleet hit 2019-20 profits?

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TUI Faces Significant Profit Reduction Due to Grounded Boeing 737 MAX Fleet

TUI has issued a warning that its 2019-20 business year will experience substantial financial burdens stemming from its grounded fleet of 15 Boeing 737 MAX aircraft. The ongoing flight ban is projected to reduce adjusted operating profit (EBIT) by €130 million if the planes are able to resume service by the end of April. Should the grounding extend to the end of TUI's financial year in September, the company anticipates additional costs ranging from €220 million to €270 million, excluding any potential compensation from Boeing.
Financial Impact of Extended Grounding

If the Boeing 737 MAX fleet remains grounded until the conclusion of TUI's financial year in September, the cumulative impact on adjusted operating profit (EBIT) could escalate to between €220 million and €270 million. This projection highlights the escalating financial strain associated with the prolonged grounding of these aircraft, a situation that began in March following two fatal crashes resulting in 346 fatalities. These figures do not account for any compensation that TUI might receive from Boeing.
Boeing's Efforts and Regulatory Approval

Boeing has introduced a revised version of the 737 MAX, incorporating an updated flight handling system, the Maneuvering Characteristics Augmentation System (MCAS), which has been modified to provide pilots with greater control. This system was identified as a key factor in the previous accidents. However, regulatory bodies, including the US Federal Aviation Administration, are still in the process of reviewing and approving these modifications. Boeing had initially expressed hope for regulatory clearance before the end of the current year, but subsequently revised its estimate for the resumption of commercial flights to January, to accommodate necessary pilot training.
Previous Financial Performance and MAX Impact

In the 2018-19 financial year, TUI reported a net profit attributable to shareholders of €416 million, marking a 42.8 per cent decrease compared to the 2017-18 period. Despite a 2.5 per cent year-on-year increase in revenues to €18.9 billion, the group's adjusted operating profits (EBITA) fell by 25.6 per cent to €893 million. The company specifically noted that if the impact of the 737 MAX grounding were excluded, the adjusted EBITA would have remained stable at €1.186 billion, consistent with the previous year's performance.

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How will TUI’s grounded Boeing 737 MAX fleet hit 2019-20 profits?

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