Work is only just beginning for Lufthansa

Frankfurt Daniel Röska, analyst at Bernstein Research, uses a picture from the mountaineering. “If there is a mountain that Lufthansa has to climb, then they have only reached the base camp,” writes the aviation expert in a comment on the current development at the airline group.

The aid is necessary to deal with the massive consequences of the corona pandemic. But because of the high interest rates, they are also a challenge for the company. “This is quite lucrative for the state, but overall the burdens are quite substantial,” said Karl-Ludwig Kley at the shareholders’ meeting on Thursday.

Calculations by Bernstein expert Röska show how big the load is. He added up all of the company’s obligations – including pension provisions – and subtracted the available cash. The result: At its peak, the so-called net financial debt will reach the impressive value of 26 billion euros.

Lufthansa boss Carsten Spohr made it clear on Thursday that despite this burden and the associated repayment obligation, he wants to repay the government funds as quickly as possible. These were not calming pills for the shareholders, who are increasingly worried about their future viability. “Spohr is absolutely serious. Internally, he made it clear that his primary goal is to end the chapter on state aid very quickly, ”says one manager. Everything else will be subordinated for the time being.

The question is how he can and wants to do it. One element is refinancing on the capital market. It was closed to the “Hansa” at the head of the corona crisis. However, with the careful restart of air traffic and the relaxation on the part of the pandemic, management hopes to be able to act again soon. The aim is to get the so-called “investment grade” back from the rating agencies as quickly as possible in order to be attractive to investors.

A second element is the reorganization of the entire company. The size of the fleet, the strategy of operating several hubs, the large number of flight operations (AOC), the services associated with flight operations – all of this is at the disposal and will be checked.

The bottom line is that management wants to reduce the complexity of the group, which has long been a block on the leg of “Hansa”. The system partners such as airports and ground handling services should also make a contribution, for example through reduced fees.

Important contribution from employees

One of the most important elements is employee contribution. Management has just achieved a deal with the cabin union UFO, which enables savings of more than half a billion euros. According to Spohr, the talks with the pilot association Vereinigung Cockpit (VC) are on the right track, and those with Verdi for the ground staff will continue this Friday.

After the shareholders’ approval of the rescue package, there is great optimism among the employee representatives. “Lufthansa must now concentrate on the urgent operational challenges in order to prepare flight operations and the group for future challenges,” said Markus Wahl, President of VC. “The pilots of all airlines in the Lufthansa Group have already shown with extensive offers that they want to make their contribution.”

But analyst Röska wonders whether such agreements, such as those that have now been reached with the UFO, will suffice given the enormous financial burden on the group. Or whether the entire tariff system does not have to be completely renewed. “The mountain of debt and the obligation to repay state aid as quickly as possible will force management to make tough decisions in negotiations with employee representatives,” said Röska.

However, there is another problem with these negotiations. In order to be able to draw up a resilient personnel plan, management first has to calculate future demand. An enormous challenge, because nobody can currently say how quickly private and business travel will recover.

No aircraft cancellation planned

A statement by Spohr at the Annual General Meeting shows how difficult such a prediction is. At the balance press conference in March, the Lufthansa boss had said that negotiations were also underway with aircraft manufacturers about the cancellation of aircraft. Now, on Thursday, he noticed that plane cancellations are no longer planned: “We believe that the necessary flexibility can be achieved entirely through postponements.”

According to the latest data, Lufthansa has ordered 198 aircraft for the group, which should actually be delivered by 2027. The company will retire numerous old jets and replace them with new ones. This is also stipulated in the State Aid Treaty, which also includes a contribution to climate protection. Among other things, Lufthansa is obliged to take 80 planes there.

However, the fact that the management is now planning to take over all of the aircraft ordered, despite the crisis, albeit at a later point in time, shows that the Lufthansa management assumes that flight operations will eventually return to a reasonably normal level. However, the corresponding staff is also required for this.

More: Lufthansa shareholders approve the rescue package

Leave a Comment