Europe's largest aviation group is badly hit by the near collapse of international air traffic in the wake of the Covid-19 pandemic, evidenced by figures the Executive Board presented today (19MAR20) at its Annual Press Conference in Frankfurt. The share is in free fall and flight activities came to a near standstill.
Lufthansa Cargo reports heavy losses following a splendid year 2018. Even before the outbreak of the Wuhan virus, the 2019 fiscal year was marked by tariff conflicts, price wars, and political uncertainties causing profit warnings.
The Lufthansa Group as a whole, including the subsidiaries Swiss Air Lines, Austrian Airlines, Brussels Airlines, and Eurowings, posted an operating profit of €2.03bn (adjusted EBIT) in 2019. This looks positive at first glance but is a decline of almost 29% year-over-year. Hardest hit is subsidiary Lufthansa Cargo, which slipped heavily into the red last year.
Taking a closer look at the Group’s widespread logistics business, several positive and encouraging results catch the eye, despite Lufthansa Cargo’s major losses. For instance, the annual profit totaling 23 million euros generated by time:matters, Lufthansa Cargo’s specialist for ultra-rapid transports. An even higher contribution came from Shanghai-based ground handler, PACTL, which reports earnings of 74 million euros, and ULD manager, Jettainer, made a surplus of one million euros. Yet, the bottom line is that Lufthansa's logistics business closed fiscal 2019 with a deficit of 33 million euros, sharply contrasting its 2018 adjusted EBIT of €268million.
According to management, the air freight division’s financial losses are due to declining demand, international trade conflicts, and the uncertainties triggered by Brexit. This led to a slump in global demand which could not be compensated by adjustment measures such as the reduction of the MD-11 freighter fleet.
At 8.9 billion TKM, freight volumes remained unchanged year-on-year, but the load factor went south, averaging 61.3%, down 4.6%. The freighter fleet was further reduced, by retiring four MD-11Fs, leaving 6 of this freighter variant still in service, together with nine B777Fs and two additionally leased B777Fs operated by AeroLogic, but entirely marketed by Lufthansa Cargo.
Pax B747-8 to fly cargo
In contrast to Lufthansa’s passenger airlines, Lufthansa Cargo plans no short-time work, because there is growing demand for air transports since many carriers grounded their fleets as a reaction to the corona crisis and the entry bans for travelers imposed by many countries. As head of Lufthansa’s Communications Department, Thomas Jachnow, confirmed to CargoForwarder Global, the airline intends to operate passenger Boeing 747-8 aircraft to supplement Lufthansa Cargo’s freighter fleet. “The aircraft can easily accommodate 60 tons of freight per flight, stowed in their lower deck compartments that are free of passenger baggage.”
Due to Covid-19, Lufthansa has grounded 95% of its passenger fleet, while Group members Austrian Airlines, Air Dolomiti and Brussels Airlines cancelled their flights altogether until further notice. At Frankfurt Airport, the northwest runway is being closed to make room for parked Lufthansa jets.
Management opposes nationalization
Further to this, the management has denied rumors about a possible state participation in Lufthansa. "In order to secure its strong financial position, the group has raised additional funds of about 600 million euros in recent weeks," Lufthansa announced. This means that the Group currently has liquid funds of around 4.3 billion euros. Added to this are unused credit lines of around 800 million euros. Further borrowing is currently being implemented. Among other things, the Group will use aircraft financing for this purpose. 86% of the Group fleet is owned. Almost 90% of this is unencumbered. This corresponds to a book value of around 10 billion euros.
Even if these are reassuring statements regarding the economic situation of the Group, the management still speaks of a struggle for survival.
Worst of all, the duration of the corona crisis cannot be estimated. This uncertainty is currently Lufthansa Group's biggest problem and torpedoes expenditures, fleet decisions and flight plans.
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