Ryanair Says MAX Grounding to Hurt Profit -- WSJ

Date : 05/21/2019 @ 8:02AM
Source : Dow Jones News
Stock : Ryanair Holdings Plc (RYA)
Quote : 9.898  -0.08 (-0.80%) @ 2:07PM

Ryanair Says MAX Grounding to Hurt Profit -- WSJ

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By Robert Wall 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 21, 2019).

LONDON -- Ryanair Holdings PLC, Europe's biggest budget airline and the region's largest customer for Boeing Co.'s 737 MAX jets, warned profit would be dented this year by the plane's global grounding.

The Irish carrier said Monday it faces higher-than-expected costs because of the suspension of MAX deliveries after the jet suffered two fatal crashes in Indonesia and Ethiopia in less than five months. Ryanair was due to receive its first MAX planes this spring, which would have provided more seats and greater fuel efficiency. The airline, which mostly operates older-model 737s, has labeled the new plane a "game changer."

Ryanair said the delay in getting the new planes, together with generally lower airfares and higher fuel costs, would limit profit this year to between EUR750 million ($837 million) to EUR950 million, or roughly flat on last year. Analysts expected about EUR1 billion in profit, according to FactSet.

Shares closed down more than 4% Monday in London.

Ryanair now plans to receive its first MAX planes in October and start flying them in November if the jet has been approved by regulators. It still wants to take about 47 of the planes this financial year.

The carrier expects the U.S. Federal Aviation Administration to clear the MAX to resume flying around July or August, with Europe's regulator to follow about a month or two later, Chief Executive Michael O'Leary said. Ryanair has suspended all MAX-related pre-delivery payments to Boeing.

"We are working on a daily and weekly basis with Boeing and with EASA, the European safety agency, on a return to service," Mr. O'Leary said.

Mr. O'Leary said that he still had "utmost confidence" in the MAX, though added the planes wouldn't generate meaningful cost savings until the financial year ending in March 2021. Ryanair has ordered 135 of the planes with options for 75 more.

Ryanair said it would carry about a million fewer passengers this year because of the MAX delay, which likely equates to about EUR37 million in lost sales based on its average airfares.

"We will be looking for compensation from Boeing," Chief Financial Officer Neil Sorahan said, without giving a figure.

Ryanair's downbeat outlook and plan to seek compensation follows similar comments from other airlines that have warned on the financial impact of the MAX grounding.

Ryanair also said it had taken delivery of its first 737 MAX simulator and would get two more before year-end. The FAA has indicated it won't require MAX pilots to undergo extra simulator time, though some regulators are still considering mandating such sessions. The FAA this week expects to meet with foreign regulators to discuss how to manage the MAX's potential return to service.

Mr. Sorahan said the airline was sure Boeing would fix the MAX and Ryanair would consider, at the right price, also buying larger 737 MAX 10 models. Purchasing rival Airbus A321s would also be an option, he added, depending on costs.

The comments came as Ryanair reported a roughly 40% fall in net profit for the financial year ended March 31 to EUR885 million, despite a 7% increase in sales to EUR7.7 billion. Profitability was hit by a 6% slump in average fares and EUR139.5 million in costs associated with getting Austrian carrier Lauda running after Ryanair bought the airline in 2018.

The airline's board has approved a EUR700 million share repurchase.

Airlines in Europe have faced multiple headwinds, including rising fuel costs and overcapacity in some markets. Several smaller carriers have gone bust and others -- including Ryanair -- have issued profit warnings in recent months. Carriers, including British Airways parent International Consolidated Airlines Group SA and British budget carrier EasyJet PLC, this month said they would slow expansion.

Write to Robert Wall at robert.wall@wsj.com


(END) Dow Jones Newswires

May 21, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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