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TUI Travel Commits to Potential $12 Billion Aircraft Deal With Boeing

LONDON -- The shares of Tui Travel  (LSE: TT  ) dropped 2% to 356 pence this morning after the package-holiday firm announced it had agreed a potential $12 billion deal to buy as many as 120 new 737 MAX jets from Boeing (NYSE: BA  ) at a "significant discount".

Tui, the world's largest tour operator and owner of both Thomson and First Choice, will need to ask for shareholder approval to complete the deal.

This deal forms part of Tui's latest European Mainstream modernization program. According to the group, 80% of its passengers travel on narrow-bodied aircraft like the Boeing 737. The new jets promise to be 13% more fuel-efficient than their predecessors, helping to drive long-term cost efficiencies at Tui.

The first 60 jets will be delivered between 2018 and 2023 for $6.1 billion, while an agreement is in place for Tui to buy an additional 60 aircraft at the same fixed price. Tui could then buy a further 30 planes at a newly negotiated price.

Chief executive Peter Long added: "A major part of TUI Travel's strategy is to provide our customers with unique holiday experiences they can only get from us. This multi-billion pound investment ... will be a further driver in delivering this."

With a market cap of £4 billion, Tui Travel is valued at 13 times its forward earnings, and offers a prospective dividend yield of 3.5%.

Of course, whether that valuation, today's news and the prospects for the travel industry combine to make Tui a buy, is something only you can decide.

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Related Tickers

8/26/2016 4:00 PM
BA $132.23 Down -0.75 -0.56%
Boeing CAPS Rating: ****
TT $0.00 Down +0.00 +0.00%
TUI Travel CAPS Rating: No stars