The airline industry may not survive without state aid if the coronavirus pandemic lasts a long time, Lufthansa warned on 23rd April, predicting it would emerge into a “different world” after the crisis. Like many of its rivals, Lufthansa has slashed flights, cut working hours and suspended its dividend to try to cope with the fallout from a crisis that has seen governments impose draconian travel restrictions and bookings evaporate.
Lufthansa Group has published its preliminary first quarter results, showing a loss of around €1.2 billion, and gave a stark warning about its solvency over the coming weeks. The group said that despite available liquidity of around €4.4 billion, “in view of the business outlook, existing multi-billion liabilities related to trade payables and refunds of cancelled tickets as well as upcoming repayments of financial liabilities, the Group expects a significant decline in liquidity in the coming weeks”.
“The Group does not expect to be able to cover the resulting capital requirements with further borrowings on the market,” it added. “The Group is therefore in intensive negotiations with the governments of its home countries regarding various financing instruments to sustainably secure the Group’s solvency in the near future.”
The group said that in March alone revenue declined by almost €1.4 billion or 47 per cent, adding that “Cost reductions could only partially offset the revenue decline in the quarter”. “At present, it is not possible to foresee when the Group airlines will be able to resume flight operations beyond the current repatriation flight schedule. “The Group therefore expects a considerably higher operating loss in the second quarter compared to the first quarter.”
Lufthansa has already begun the process of decommissioning several aircraft, including its entire fleet of A340-600s.
Austrian has also announced plans to retire half of its B767 fleet: “The entire airline industry is pessimistic. We have to assume that we will reach the ‘pre-corona level’ again in 2023 at the earliest.”
Global airlines group IATA has forecast the industry will need up to $200 billion of state support.
Lufthansa, which also owns Swiss International, Austrian Airlines and Brussels Airlines, is carrying out 140 relief flights to repatriate stranded citizens in what has been described as the biggest operation of its kind. “In addition, we are doing our utmost to help ensure that supply chains for many thousands of businesses do not break down by mobilising additional capacity for air freight transport,”
As governments across the world close borders and airports, the Lufthansa Group has been forced to make drastic cuts in its flight operations.
Austrian Airlines is suspending operations until March 28, with the exception of special flights, after its last scheduled flight to Vienna landed on 23rd April.
Swiss International Air Lines said it was experiencing massive revenue losses and short-term measures to safeguard liquidity were the top priority.
Lufthansa is also discontinuing long-haul flights from Munich and for now will only offer three intercontinental flights per day from Frankfurt.
Around 700 of Lufthansa Group’s 763 aircraft will be temporarily parked. Some passenger planes may be redeployed to shift freight.
In order to secure its finances, the Lufthansa Group said it had raised an additional 600 million euros ($650 million) in recent weeks, giving it liquidity of around 4.3 billion euros. In addition, it has unused credit lines of around 800 million euros and is looking to raise further funds, including through aircraft financing.