TUI Travel has committed to spend 6.1bn dollars on 60 new aircraft with the option to acquire the same amount again at the same price.
As part of the modernisation of its Mainstream European travel business the group has secured "significant" discounts on 60 Boeing 737 MAX aircraft, but will require shareholder approval for the transaction.
TUI said the new planes are more fuel-efficient and cost-effective, with a 13% increase in fuel efficiency and 40% decrease in noise levels over its current fleet.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The aeroplanes will be delivered between January 2018 and March 2023 as part of TUI's fleet renewal strategy.
The group also has the option to acquire a further 60 Boeing 737s on the same terms, as well as being offered the right to purchase a further 30 Boeing 737s on new terms to be agreed.
TUI explained that five of its six Mainstream Sector European airlines use narrow-body aircraft such as the Boeing 737 Max for short and medium-haul destinations, representing roughly 80% of the group's airline passengers during the last financial year.
"Having a modern, cost-efficient and reliable fleet is strategically important to the group."
"In order to maintain cost competitiveness and support TUI Travel's aim to minimise the environmental impact of its activities, the existing narrow-bodied aircraft will need to be replaced in the next decade."
"The proposed transaction will ensure that the group has sufficient aircraft to fulfil its long-term plans and that the expected accrued value justifies the cost of the purchase."
Peter Long, Chief Executive of TUI Travel PLC, said: "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 in the B737 MAX - representing the future generation of more fuel-efficient aircraft for our short and medium-haul programmes - will be a further driver in delivering this."
A circular will shortly be sent to shareholders to determine their approval of the deal.
OH
-
Should you invest in UK equities?The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
-
State pension errors: DWP urged to check for mistakes among divorced peopleFormer pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
