Lufthansa is already making plans to relieve the burden of its $10 billion debt that was issued by the German government to bail it out of the current crisis. CEO Carsten Spohr says that it plans to pay back the loan by the middle of the decade, and is eyeing selling some parts of the business in order to raise the money.
Lufthansa making plans to pay back the loan
In June, German flag carrier Lufthansa shocked the aviation community by sealing a deal to receive a €9 billion ($10 billion) bailout from the government. While the money was much needed at the time, it set the airline up with a large debt to service. However, the boss of the airline believes that it will not be a burden for long.
Speaking at the World Aviation Festival last week, CEO of Lufthansa Carsten Spohr said that the airline fully intends to pay back the government within just a few years. He said,
“We are planning to pay back the government by the middle of the decade. We have elements in the contract that allow our own decision making without the government needing to approve it. So, there is a way out for us. If the financials allow, which we are working hard on.”
Lufthansa is indeed working hard on streamlining operations and slimming down the business. In the past few weeks, it has revealed deep cuts to its fleet, including probably never returning the A380 to service, as well as cutting its workforce by thousands. Still, $10bn is a big ask, so how will it happen?
How will Lufthansa raise the $10 billion?
By anyone’s standards, $10bn is a huge amount of money to raise. To be so assured of doing it within the next few years, given the state of the industry, is surprising, to say the least. However, Spohr is a very astute businessperson and has clearly done the sums.
He commented that there are many ways for Lufthansa to raise the money to pay back the state. He said,
“It will be a mix. In our particular case, we have elements in the portfolio, which we can use to help … Lufthansa Technik, our catering business, our financial service business. So we have elements in the group, which we could be selling.
“And of course, eventually airlines can go back to the financial markets as well. Some are doing it while we have this conference. Others, like us, want to wait before the markets are stronger again. It’ll be a mix of these elements to be able to repay the debts.”
Spohr was pressed on whether any further capital raising would be done through a credit agreement or through equity shares. However, the Lufthansa boss maintained that this was not the issue for Lufthansa right now, as neither were an attractive option at the present time. He said,
“We just don’t think that the markets are paying what they should be paying eventually. The share prices are low, so we’re not looking at an equity increase here. But we, of course, have raised credit. We have sold aircraft and leased them back a few weeks ago, we have done leasing deals with aircraft we owned before. So, I think there are ways to raise both equity and debt, and all of us have to find our own ways to optimize that.”
Nothing will be divested in a rush
While Lufthansa has been raising capital in a variety of means, including selling its European catering business, Spohr was clear that no further steps would be taken in the immediate future.
“We have sufficient liquidity in the portfolio and enough time to not call any fire sales, be it Lufthansa Technik, be it AirPlus [a travel payment company owned by Lufthansa] or be it our catering business for the rest of the world outside of Europe.”
He noted that, in time, some divestment could take place, but not until the markets are right. Right now, he said, the company is faced with a market unwilling to pay what the businesses are worth. Until that changes, no sales will take place.
One thing Spohr was very clear on was Lufthansa’s Miles & More frequent flier scheme. In the US, we’ve seen a number of airlines either selling off portions of their schemes to raise cash or using them as collateral against credit loans. But for Spohr, it is clear that he plans to hold on to the scheme. In his words,
“It’s worth so much, but I’m not willing to give it to anybody else … that one is just not for sale.”