Contributor - Europe

Cathy Buyck

While noting that Lufthansa Group reacted very early to counteract the drop in demand in the wake of the Covid-19 outbreak, company CEO Carsten Spohr warned on Thursday that the airline would need to enact more measures as demand dries up and more and more countries impose entry restrictions. “The spread of the coronavirus has placed the entire global economy and our company as well in an unprecedented state of emergency,” Spohr said during the presentation of Lufthansa’s full-year results. “At present, no one can foresee the consequences. We have to counter this extraordinary situation with drastic and sometimes painful measures.”

 


The group will operate just 5 percent of its planned capacity from March 25&nbsp;and ground approximately 700 of its 763 aircraft-strong fleet. Three of its airline subsidiaries—&nbsp;Air Dolomiti,&nbsp;Austrian Airlines, and Brussels Airlines—will suspend or have already suspended all flights while Lufthansa will discontinue long-haul operations from Munich and reduce the intercontinental network to five routes from Frankfurt.&nbsp;Only a few European metropolitan areas will continue to receive service from the hubs in Frankfurt, Munich, and Zurich. Swiss will maintain only one long-haul destination, Newark.

 


The group has started discussions with Airbus and Boeing to defer aircraft deliveries and cancel orders.&nbsp;For now, Lufthansa is concentrating on deferring deliveries and stopping pre-delivery payments to minimize the outflow of cash, Spohr said, noting that all airlines and lessors globally have begun talks with Toulouse and Seattle. “Can you imagine the chaos that must reign there,” he remarked. Lufthansa’s original delivery program called for a new aircraft every 10 days on average, but “we don't even need one,” Spohr said. Several of its aircraft sit lined up at Berlin's new airport, and the company will use one of Frankfurt airport’s runways to park aircraft in the future. “There is plenty of space to park aircraft in Europe,” according to Spohr.

 


CFO Ulrik Svensson stressed the Lufthansa Group is “financially well equipped” to cope with the current crisis. “We own 86 percent of the group's fleet, which is largely unencumbered and has a book value of around €10 billion,” he said.&nbsp;The company raised additional funds of around €600 million in recent weeks, lifting the group’s liquidity to about €4.3 billion. In addition, the airline can access unused credit lines of around €800 million.

 


Government help might prove necessary if the crisis persists, but “currently it is not necessary,” Spohr insisted. He recognized that several governments, including those of China and the U.S., are already offering massive bailouts to their carriers, potentially distorting competition. “We will need to consider the [post-Covid-19 crisis] structure of the aviation industry globally, the structure of the Lufthansa group, and the value of European airlines on the global scene,” he asserted. “Our industry will change sustainably and structurally. And the Lufthansa Group will not be the same as now.”

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