30-Oct-2009 1:42 PM

Lufthansa adjusting fleet orders; conditions remain "very difficult"; no more acquisitions

Lufthansa provided the folllowing commentary upon the release of its financial results for the nine months ended Sep-2009 (Company Report/Reuters/Bloomberg/Dow Jones, 29-Oct-2009):

  • Fleet deferrals: Lufthansa CEO, Wolfgang Mayrhuber, stated the carrier has commenced adjusting new aircraft orders to better reflect the current economic and market conditions, stating it has negotiated new delivery dates for some of its orders originally planned for between 2010 and 2013. Approximately ten aircraft are likely to be deferred in 2010, with the airline currently in talks with Airbus, Boeing, Bombardier and Embraer about its requirements. The deferrals are part of the carrier’s plans to postpone EUR2.1 billion of investment spending over the next three years, with the majority of the savings to come from new aircraft deferrals. The Group had a total fleet of 725 aircraft at the end of Sep-2009;
  • Acquisitions: Lufthansa CFO, Stephan Gemkow, in an interview with Reuters TV, stated Lufthansa is not currently planning any more acquisition. Mr Gemkow stated the carrier was in talks with British Airways and others related to bmi, but has halted talks pending a new bmi CEO taking office. The carrier expects the newly-acquired bmi to continue to be unprofitable in 2010;
  • Fuel Costs: Mr Gemkow stated the company has increased its fuel cost expectations for 2009 and 2010, reflecting the acquisitions of bmi and Austrian Airlines. In 2010, Lufthansa expects its fuel bill to total EUR4.5 billion, with approximately 59% of fuel requirements already being hedged.  The carrier added that fuel costs for 2009 are expected to total approximately EUR3.7 billion, up from the previously forecast EUR3.4 billion. Lufthansa paid EUR5.4 billion for jet fuel in 2008.
  • Share issue: Mr Gemkow stated the carrier has no intention of issuing fresh shares to improve its equity ratio or credit rating, stating, "at the moment a capital increase is not an issue at all for us". He added that the airline's efforts are focused on improving operating cash flows, which is more effective than measures, such as a capital increase;
  • Capital expenditure: Lufthansa stated its capital expenditure in the nine months ended Sep-2009 totalled EUR1.8 billion, of which EUR1.4 billion was spent on the expansion and modernisation of the fleet. The acquisition of 45% of the shares in SN Airholding SA/NV (Brussels Airlines) accounted for EUR65 million. The acquisition of airlines, which are to be consolidated (particularly Austrian Airlines and bmi), accounted for EUR56 million after the deduction of the acquired cash and cash equivalents. Meanwhile, EUR77 million was gained from the disposal of the remaining Condor shares and the repayment of related loans. At the close of the third quarter, the Group's net indebtedness stood at EUR1.9 billion.
  • Economic conditions: Lufthansa stated the market environment for passenger transportation remains “still very difficult” and that the industry is “still a long way away from a recovery”. The airline added that “initial signs of a stabilisation in volumes are far away from making up for the enormous and unrelenting pressure stemming from the massive fall in price levels”. The carrier also stated that it “has to be assumed that a large part of the fall in revenue – particularly in European traffic – is structural in nature”, and thus a structure response is required. On the cost side, Lufthansa stated that volatile fuel prices are an “issue” and they are expected to continue their upward trend in anticipation of an economic recovery”;
  • Restructuring efforts: Lufthansa stated that Austrian Airlines and bmi are making “considerable efforts” to restructure, which is intended to bring them back to profitability in the medium term. Lufthansa added that Lufthansa Passenger Airlines, SWISS and Germanwings are also making “great efforts to overcome these challenges”. As part of this, Lufthansa Passenger airlines launched its “CLIMB 2011” programme in the period, aimed at generating EUR1 billion in improved earning by the end of 2011, principally by reducing its cost base. [more

Lufthansa: “A sharp fall in revenue and pressure on earnings are assumed for the full year. The new companies are also expected to deliver a negative earnings contribution in the fourth quarter. All endeavours are therefore still directed towards avoiding an operating loss for the segment. The achievement of this target is subject to considerable risk, though. Thus, comprehensive measures in capacity and cost management by all companies in the segment are essential. Despite the steps already taken, Lufthansa Passenger Airlines are expected to contribute a loss to the operating result of the segment for the full year,” Company Statement, 29-Oct-2009.

Lufthansa: “Whereas recent months have seen the stabilization of demand in the passenger business, revenues remain at rock-bottom despite record load factor. All of the business segments are working hard to overcome the consequences of the crisis and to adjust their structures to the altered competitive environment,” Wolfgang Mayrhuber, Chairman and CEO. Source: Company Statement, 29-Oct-2009.

Lufthansa: “Lufthansa Cargo was hit particularly hard by the downswing and has therefore tightened its efforts to safeguard earnings, reduced capacities and expanded its cost-cutting programme. The Catering and IT Services segments were also not able to match last year’s good revenue and results. The MRO segment in contrast continued its growth path, achieving revenue growth and a higher operating profit than last year. All business segments are pursuing their programmes to safeguard earnings and will continue to adapt them to changes in demand,” Company Statement, 29-Oct-2009.

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