Lufthansa Group Reports Adjusted EBIT of €2 Billion in Challenging Economic Environment
The Lufthansa Group reported on Thursday a 2019 Adjusted EBIT of €2 billion in a very difficult economic environment. The company has instituted comprehensive savings measures including deep capacity reductions, dividend suspension and executive pay cuts.
Today (March 19, 2020), the Lufthansa Group reported an adjusted EBIT of €2 billion for 2019 in an extraordinarily difficult economic environment for European airlines. Naturally, as a result of the global COVID-19 pandemic, all airlines are currently facing an unprecedented crisis as demand is virtually non-existent, other than for repatriation flights. The Lufthansa Group has taken comprehensive cost savings measures system-wide including massive capacity reductions, a suspension of dividends, and a 20 percent pay reduction for Executive Board members. These are in addition to a series of cost savings initiatives the Group has announced over the last month. In Wednesday’s announcement, Deutsche Lufthansa AG’s Chairman of the Executive Board, Carsten Spohr said,
“The spread of the coronavirus has placed the entire global economy and our company as well in an unprecedented state of emergency. At present, no one can foresee the consequences. We have to counter this extraordinary situation with drastic and sometimes painful measures. At the same time, we must live up to the special responsibility that airlines bear in their home countries. We are doing everything we can to bring as many passengers as possible on relief flights. In addition, we are doing our utmost to help ensure that supply chains for many thousands of businesses do not break down by mobilizing additional capacity for air freight transport. The longer this crisis lasts, the more likely it is that the future of aviation cannot be guaranteed without state aid. In view of the massive impact of the Corona crisis, today’s publication of our results for the past financial year is unfortunately sidelined.”
The Lufthansa Group previously reported key financial figures for 2019 in a March 13, 2020 announcement. As stated, the Group reported a 2019 EBIT of €2.0 billion, a year-over-year decline driven by a €600 million increase in fuel costs and economic slowdown in European markets. The Group’s airlines were also impacted by price pressures due to market overcapacity and an overall weakening of the global freight business. Lufthansa Group revenues increased year-over-year by 2.5 percent to €36.4 billion, while EBIT margin declined 1.4 percent to 5.6 percent and consolidated net profit fell 44 percent to €1.2 billion.
During 2019, the Lufthansa Group invested €3.6 billion, largely on new aircraft, while adjusted free cash flow fell €203 million on lower profits and higher tax payments. After taxes, return on capital employed (ROCE) decreased 4.2 percent to 6.6 percent year-over year. The Group closed 2019 with interest bearing net liabilities of €4.3 billion and €2.4 billion in lease liabilities (recognized for the first time under IFRS 16) for a total net debt of €6.7 billion versus €3.5 billion in FY 2018. Pension liabilities grew 14 per cent to €6.7 billion, largely due to a lower interest rate used to discount pension obligations.
The Lufthansa Group raised around €600 million in recent weeks to strengthen their liquidity position, which now stands at around €4.3 billion. Additionally, the Group has untapped credit facilities of around €800 million as a substantial fleet of unencumbered aircraft which may be used as collateral to raise additional capital. Also commenting on Thursday’s announcement, Deutsche Lufthansa AG’s Chief Financial Officer, Ulrik Svensson added,
“The Lufthansa Group is financially well equipped to cope with an extraordinary crisis situation such as the current one. We own 86 percent of the Group’s fleet, which is largely unencumbered and has a book value of around 10 billion euros. In addition, we have decided to propose to the Annual General Meeting that the dividend payment be suspended, and we are proposing short-time working in our home markets.”
As previously announced, Lufthansa Group carrier Air Dolomiti conducted its last flight (until further notice) on Wednesday March 18, 2020. Austrian Airlines’ last regularly scheduled flight landed in Vienna today until March 28, 2020 and Brussels Airlines has suspended regularly scheduled flights from March 21st through April 19, 2020. Lufthansa is suspending long-haul flights from Munich, which will no only be operated from Frankfurt. SWISS has reduced long-haul flying to three-weekly flights to New York-Newark (EWR) and has substantially reduced the rest of their short and medium haul schedules. Lufthansa is also substantially reducing their short-haul schedule and will only offer Lufthansa CityLine flights from Munich. Lufthansa will continue to operate an emergency relief flight program until April 19, 2020, representing only about 5 percent of their original schedule and the Group is parking 700 of 763 aircraft in their fleet.
To keep critical German and European supply chains moving, Lufthansa Cargo is operating a full schedule (except cancellations to mainland China) with seven Boeing 777Fs, six MD11Fs and four 777Fs from Aerologic. The company is also examining the possibility of using passenger aircraft (without passengers) as freighters.
Source: Deutsche Lufthansa AG