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".
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%.
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