German travel operator TUI and Boeing Co (BA) have reached an agreement on a comprehensive package of measures to offset the financial impact of the grounding of the planemaker’s 737 MAX jets.
The two-year compensation package includes a new delivery schedule for the 737 MAX aircraft of which the travel company had an order of 61. As a result, less than half of the originally planned 737 MAX aircraft will be delivered to TUI in the next two years with the timing also being delayed.
The associated payment schedules have been adapted accordingly, TUI said in a statement. The financial terms of the agreement weren’t disclosed as its details are confidential. However, TUI said that the compensation deal covers a “significant portion of the financial impact, as well as credits for future aircraft orders”.
“We have reached a fair agreement that strengthens our long-standing relationship with Boeing,” TUI CEO Fritz Joussen said. “It supports our plan to downsize the aircraft fleet and reduce the capital requirements for aircraft investments in the Group.”
With its five airlines in Germany, the UK, Belgium, the Netherlands and Sweden, TUI is one of Boeing’s largest European customers for the 737 aircraft. Temporary suspension of aircraft production had begun in January after the company grounded the 737 MAX jet last year following a second crash.
The ailing planemaker said last week it restarted 737 MAX production at its factory in Renton, Washington, albeit at a low rate and is planning to gradually ramp up production this year.
Boeing has been cutting jobs and streamlining operations as travel restrictions tied to the coronavirus pandemic have resulted in a deep cut in the number of commercial jets and services its customers need over the next few years. Last month, the planemaker reported that it did not receive a single order in April, while it was also grappling with 108 order cancelations for its grounded 737 MAX plane.
Shares advanced 1.5% to $155.60 in Wednesday’s pre-market trading, trimming this year’s plunge to 53%.
Susquehanna analyst Charles Minervino this week reiterated a Buy rating on the stock with a $175 price target, as he believes that a steady recovery in air travel off the lows seen in 2Q should lift demand for aftermarket services in the coming quarters.
Overall Wall Street analysts are cautiously optimistic on Boeing shares. The Moderate Buy consensus is divided into 8 Buy, 11 Hold and 1 Sell rating. The $161.61 average price target implies 5.4% upside potential in the stock in the next 12 months. (See Boeing’s stock analysis on TipRanks).
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