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UPDATE 3-TUI says 737 MAX grounding could cost it 400 mln euros in 2020

By Sarah Young

* FY earnings down 26 pct to 863 mln euros

* Sees 2020 earnings in range of 950 mln euros to 1.05 bln euros

* 2020 forecast includes 130 mln euro hit from 737 MAX grounding

* Headwinds of up to 400 mln euro if 737 MAX grounded beyond April (Adds CEO comments)

By Sarah Young

LONDON, Dec 11 (Reuters) - Holiday company TUI Group said the grounding of its Boeing 737 MAX planes would continue to drag on profits, with a hit of up to 400 million euros possible in its 2020 financial year if the jet does not come back into service by May.

The company, whose main rival Thomas Cook went out of business in September, said on Wednesday that earnings forecasts for the 12 months to end-September 2020 assumed a 130 million euro hit from the grounding.

But it added that forecast earnings growth of at least 6 percent was based on the 737 MAX being back in service by the end of April and that an additional 220 million to 270 million euros could be wiped off profits if it was not.

"April is what we expect," CEO Fritz Joussen told reporters. "Our core guidance is the end of April".

The 737 MAX was grounded globally in March after two crashes attributed to anti-stall software in which a total of 346 people died.

TUI said the groundings had already cost it 293 million euros in the financial year to the end of September 2019 as it paid out to replace the capacity of the 15 MAX planes it operated - 10% of its fleet, with another eight on order.

The boss of budget airline Ryanair on Tuesday warned that the model was likely to remain grounded in Europe until April or May, cautioning that it was also possible it would not have any MAX planes for the summer season.

Joussen said he was not in a position to answer questions about TUI's expectations for compensation from Boeing over the grounded aircraft.

"It will be interesting discussions. It's already interesting discussions and I can guarantee you that we are taking it very seriously," he said.


OVERSHADOWED

Analysts at Stifel said the MAX uncertainty was overshadowing a time when TUI should be "emerging from a period of capital intensive transition to a brighter future."

The company's London-listed shares fell 1.1 percent to trade at 932 pence by 1449 GMT.

TUI said it would have matched 2018's record earnings had it not been for the 737 MAX grounding. Instead, full-year earnings before interest, tax and amortisation (EBITA) were down 26 percent to 893 million euros.

It also faced headwinds from overcapacity on routes to Spanish destinations and Brexit uncertainty, factors that were partly behind the failure of Thomas Cook.

TUI, which owns its own cruise ship business, said that it was benefiting from Thomas Cook's demise, with an increase in bookings and higher prices for the current winter and coming summer seasons.

There is still plenty of competition in the European travel market, however, with rivals such as On The Beach and Jet2 also looking to cash in on Thomas Cook's collapse, as well as the relaunch of budget airline easyJet's holiday business.

Barclays analysts said a change to TUI's dividend policy would lower the consensus forecast payout for 2020.

(Reporting by Sarah Young; editing by Alistair Smout and Kirsten Donovan)