Lufthansa to finance all deliveries through SLBs
The Lufthansa Group will use the leasing market to finance all its future aircraft deliveries over the coming years in order to conserve cash to pay down debts, chief executive officer Carsten Spohr has revealed.
Speaking on an analysts' call on 3 June, Spohr said that the German carrier “definitely” will move away from a mainly owned fleet as it seeks to raise money to repay government-arranged debt.
“Every aircraft we will be accepting over the next few years will basically either be leased or be moving into sale and leaseback (SLB) within a day once we receive it because obviously the cash flow is needed for other means now including the payback,” he said.
The airline group intends to sell existing aircraft to raise additional cash to pay back the state-guaranteed funding it is seeking, but Spohr said that now was a “bad” time for aircraft financing, “which is the reason why we haven’t done it significantly over the last weeks”.
Lufthansa Group chief officer digital and finance Thorsten Dirks added that trying to raise money at present was only possible at “extremely unfavourable terms”, with the air finance market “effectively closed altogether”.
He added that the loans and capital injections were under negotiation with the governments of the various countries that business units are based in, meaning that Lufthansa Group does not have to commit to “fire sales” of its aircraft.
Lufthansa has approximately 200 aircraft on order, but Spohr said that the German carrier group would now only take delivery of fewer than 80 aircraft until 2023.
The Frankfurt-based carrier group has reduced its 2020 capital expenditure from approximately €3 billion ($3.3 billion) to €1.5 billion, of which €750 million had already been spent in the first quarter.
Spohr revealed that during talks over state support, there had been discussions about Airbus deliveries taking priority over those from Boeing, but the airline group had managed to “negotiate that away”.
While he believes that market conditions will return to normal by 2023, Lufthansa will still have a fleet of 100 fewer aircraft than before the crisis. Eurowings will see the biggest reduction in aircraft, with its fleet ranging from 90 to 100 units, he said.
However, Lufthansa will maintain its capacity to take higher-density aircraft models such as the A350, 777 and A320neo to replace older types.
Commenting on the state bailout packages Lufthansa is negotiating, Spohr said the money was required for more than just survival, but to maintain the airline group’s leading position in the global aviation sector.
The financial support being negotiated in Germany, Austria, Switzerland and Belgium would create a “huge debt package on our back”, to be repaid in a few years including interest. This should incentivise the airline group to become more efficient and more “cash flow orientated”, he said.
“I will be honest: it has been tough to accept that the Lufthansa Group will not be able to overcome this crisis on its own despite our solid financial position before the crisis,” he said.
“We need to repay the additional debt, as well as the silent participation, as quickly as possible as interest rates and coupons will rise over time,” he added.
Spohr said he was hopeful an aid package for Austrian Airlines could be closed in the coming days, while one in Belgium would take longer.
He said he was “confident” that shareholders would approve a €9 billion finance package arranged by the German government. Voting will occur during an extraordinary general meeting to be held later this month.