Travel Giant TUI Says Boeing 737 Grounding to Cost $225 Million
Travel Giant TUI Says Boeing 737 Grounding to Cost $225 Million
(Bloomberg) -- Boeing Co. faced widening fallout from the crisis over its 737 Max jets, as travel giant TUI AG warned the grounding of the aircraft will cut its profit and the estate of a passenger who died in this month’s crash in Ethiopia sued the planemaker.
Boeing, based in Chicago, has been under intense scrutiny after two 737 Max crashes since October killed 346 people. The initial findings of a probe into the Ethiopian Airlines crash suggest a malfunction of the same system as in the Lion Air disaster in Indonesia in October, the Wall Street Journal reported, citing initial findings from the plane’s flight data.
The planemaker is finalizing a software upgrade for the grounded 737 Max and fighting to hang onto some customers whose confidence in the best-selling jet has been shaken. Boeing is also facing a criminal probe into how the plane was originally approved to fly.
TUI is the biggest 737 Max operator in Europe after Norwegian Air Shuttle ASA, with 15 of the planes in its fleet of 150 aircraft. Eight more of the jets were scheduled for delivery by the end of May. The stock plunged as much as 11 percent after the travel giant warned full-year profit will take a 200 million-euro ($225 million) hit should its 737 Max fleet remain grounded until July.
“I fully expect they will try and get compensation from Boeing as was the case with the Dreamliner issue in 2013,” said Stuart Gordon, an equities analyst at Berenberg. “The question will be how much.”
The lawsuit, filed on behalf of the estate of Ethiopian Airlines passenger Jackson Musoni of Rwanda, claims the 737 Max 8 isn’t safely designed. The complaint follows earlier suits against the company over the October crash of the Lion Air flight in Indonesia involving the same model. A Boeing spokeswoman declined to comment on Thursday’s complaint in a federal court in Chicago.
“The subject accident occurred because, among other things, Boeing defectively designed a new flight control system for the Boeing 737 Max 8 that automatically and erroneously pushes the aircraft’s nose down, and because Boeing failed to warn of the defect,” according to the complaint.
Boeing faces the prospect of substantial payouts to the families of passengers if it’s found responsible for the incidents. Legal experts say the second one could prove even more damaging for the company as plaintiffs could argue Boeing was put on notice by the Indonesia crash and that its planes should have been fixed.
Worldwide groundings of the 737 Max have struck a major blow to Boeing, which has lost billions of dollars in market value after nations announced they were barring the aircraft from flying. The single-aisle Max family is the planemaker’s largest seller, accounting for nearly one-third of the company’s operating profit.
Late on Thursday, flag-carrier Garuda Indonesia said it’s going ahead with plans to cancel a $4.8 billion order for 49 Max 8s. Still, Garuda is sticking with Boeing and has asked the manufacturer for different aircraft. In Vietnam, Bamboo Airways agreed to buy as many as 26 narrow-body jets from Airbus SE, just a month after saying it was considering ordering as many as 25 Boeing 737 Max planes.
To contact the reporters on this story: Christopher Jasper in London at cjasper@bloomberg.net;William Wilkes in Frankfurt at wwilkes1@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Frank Connelly, Thomas Pfeiffer
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