TUI Travel PLC (LON:TT) could buy as many as 150 new planes from The Boeing Company (NYSE:BA).
The shares of Tui Travel (LSE: TT) dropped 2% to 356p this morning after the package-holiday firm announced it had agreed a potential $12bn deal to buy as many as 120 new 737 MAX jets from The Boeing Company (NYSE: BA.US) 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 modernisation programme. 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 $6.1bn, 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 £4bn, Tui Travel is valued at 13 times its forward earnings, and offers a prospective dividend yield of 3.5%.
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> Mark owns no shares mentioned in this article.