Carnival to Take Up to $650 Million Charge to Reduce Fleet

Cruise-line operator Carnival said it expected to report an impairment charge of $600 million to $650 million to remove 15 ships from its fleet.
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Cruise-line operator Carnival  (CCL) - Get Report said it expected to report an impairment charge of $600 million to $650 million to remove 15 ships from its fleet, with two of those 15 disclosed Wednesday.

Carnival said on July 10 that it would remove nine ships from its fleet in the following 90 days to preserve liquidity. Cruise lines, like the entire travel-and-leisure industry, have been hammered by the coronavirus pandemic as few people travel.

“The plans for the disposal of these ships are in addition to the sale of four ships, which were announced prior to fiscal 2020,” the company said in a statement.

Now, “we have made a decision to remove a further two ships from our fleet. These decisions are intended to align the fleet with the expected phased restart of guest cruise operations while also generating cost savings.”

As for impairment, Carnival officials concluded that the carrying values of the ships are no longer recoverable when compared to their estimated remaining future cash flows.

“Consequently, and in combination with other ships and notes receivables with recoverability impacted by the current environment, we expect to record non-cash impairment charges during the third quarter of 2020,” Carnival said.

“Although the actual amount of the charges has not yet been finalized, we expect the aggregate impairment charge to be in the range of $600 million to $650 million. We do not expect these impairments to result in any material future cash expenditures.”

Carnival shares recently traded at $14.43, up 0.7%. The stock has dropped 72% year to date. That compares with a 1% rise for the S&P 500.