Grounding of Boeing 737 Max 8s could cost Ryanair €10m this year

Goodbody downgrades its view on the stock to ‘hold’ from ‘buy’

Photograph: Gleb Garanich/Reuters

Photograph: Gleb Garanich/Reuters

 

The global grounding of the Boeing 737 Max 8 aircraft could add €10 million in costs to Ryanair this year, stockbroker Goodbody said as it downgraded its view on the stock.

Analysts Mark Simpson and Nuala McMahon wrote that they had assumed cost improvements for full year 2020, helped by the arrival of 47 Boeing Max 8 aircraft.

The Dublin-headquartered airline has the largest order book of Boeing 737 Max 8s and was due to begin taking delivery of the first of up to 200 aircraft early this year.

But based on the assumption those planes don’t fly this year, that would add €10 million in costs, excluding fuel, Goodbody said. Additionally, the analysts noted that lease costs for narrow-body jets have risen by a third since the grounding of the Max 8s.

Downgrade

The stockbroker downgraded its view on the Irish airline to “hold” from “buy” and reduced its price target for the stock down by €1 to €12.70. Before the market opened on Wednesday morning, Ryanair’s stock stood at €11.23 per share.

Goodbody also forecast that Ryanair’s commentary on summer performance will be “downbeat” when it releases full-year results for 2019 in May.

“In terms of the yield picture, capacity forecasts look benign but the headwinds of economic slowdown across the major European economies appears to be blowing off course a more positive outrun for the summer season,” the analysts wrote.

Goodbody is forecasting revenues of €7.6 billion at Ryanair for the year ended March 31st with earnings to come in around €1.89 billion, 18 per cent lower than a year ago.

While they saw “little cheer on the horizon”, the analysts found that one positive catalyst for the share price could be if the Michael O’Leary-led airline migrated its Max 8 order to Max 10s. They added there were “limitations” on the 197-seat capacity jet and found that a 230-240 seater aircraft would be more suitable.

A Brexit resolution, they added, would “clearly be a major positive” for Ryanair.