Boeing Co. (BA) is poised to sell 60 of its 737 Max aircraft to TUI Travel Plc (TT/) in a deal valued at $6.1 billion amid rising demand for the new, fuel-efficient variant of the world’s most widely flown jetliner.
A firm order is contingent on TUI Travel shareholder approval, according to a statement today from the company, which owns and operates six European airlines including the U.K.’s Thomson Airways Ltd. Deliveries would begin in 2018 and run until March 2023.
The Max has been a bright spot for Boeing in 2013 amid the temporary grounding of the 787 Dreamliner, the Chicago-based planemaker’s marquee model. Southwest Airlines Co. (LUV) agreed this month to be the first buyer of the 737-7 Max, the smallest version of the jet, and all-737 carrier Ryanair Holdings Plc (RYA) is studying additional orders that may include the Max.
“The Max is very important to Boeing and every incremental order they get is a positive,” Michael Derchin, an analyst at CRT Capital Group LLC in Stamford, Connecticut, who rates Boeing a buy, said by phone. “There’s definitely more orders out there. The airlines are very focused on fuel efficiency.”
Boeing is targeting the first delivery of the Max in 2017 as the company works to counter the Airbus SAS A320neo, the upgraded model of that planemaker’s top-selling single-aisle jet. Both will feature new engines to help shave fuel bills, the global airline industry’s largest single cost.
The final configuration of the Max will be set in July, giving customers “surety” on the plane’s performance and timeline, Keith Leverkuhn, the program’s general manager, told reporters yesterday at a briefing in Boeing’s commercial hub in Seattle.
TUI Travel’s commitment comes about two weeks ahead of the Paris Air Show, where Boeing and Airbus probably will have more order announcements for their narrow-body models. Airbus at the last Paris air show two years ago scored a runaway victory by offering the A320neo ahead of the Max, grabbing 667 contracts or commitments. The neo is set to enter service in 2015.
Boeing fell 1.5 percent to $99.02 in New York as broad U.S. stock indexes slumped. TUI Travel slid 1.2 percent to 358.5 pence in London. The Crawley, England-based company’s biggest shareholder is Germany’s TUI AG (TUI1), which owns 54.5 percent.
“Following the delivery of the aircraft, TUI Travel will continue to enjoy the benefits of a modern, fuel-efficient and cost-effective aircraft fleet,” the company said.
TUI Travel’s current fleet of 140 aircraft is mainly comprised of Boeing planes, the majority single-aisle, though its Corsair unit flies Airbus wide-body A330s.
“The aircraft order, on first view, appears to be a massive capital outlay,” said James Hollins, a London-based analyst at Investec who rates TUI Travel as hold. Based on standard discounts to list price, Hollins estimated that the 60-plane order marks a capital commitment of about $3.5 billion, implying a discount of close to 50 percent.
The 737 MAX-8 has a list price of about $104 million, and TUI Travel said it “secured substantial price concessions against this list price.”
Jim Proulx, a Boeing spokesman, said the planemaker doesn’t discuss prices or other contract terms.