In a prepared speech to be delivered at the Lufthansa Group’s Annual General Meeting (AGM) later today, CEO Carsten Spohr has asked shareholders to approve a new capital increase - an Authorized Capital C – to repay taxpayer funds and strengthen its balance sheet ratio, which at the end of 2020 was 3.5.
“The resolution is intended to enable us to increase our capital flexibly so that we can strengthen our balance sheet ratios again and return to our former financial stability. The timing and amount of a possible capital increase have not yet been decided. It will depend on various factors, not least of which is the further development of the crisis and our capital requirements resulting from it. What is clear is that we will use a large part of the proceeds to repay the government stabilization measures. Because – and we have stressed this time and again – we prefer to finance ourselves on the capital markets rather than by the taxpayer,” reads Spohr’s prepared remarks to be delivered at the AGM today.
Lufthansa states that it has raised approximately €4.3bn in the capital market transactions since June 2020: €750m in aircraft financing, €350m in a Schuldscheindarlehen maturing in Mach 2024, €600m in a 2% convertible bond due November 2025, €1bn 3% bond due May 2026, and €1.6bn in bonds with €750m 2.875% notes due 2025 and €850m notes due 2028. With these transactions, the airline says that it has completed the long-term refinancing of liabilities maturing in 2021, repaid the €1bn KFW loan in full in February 2021, and comments that this financing has safeguarded solvency even in the case that the market recovery falls short of expectations.
Lufthansa states that some €5bn of stablisation measures that were designed to support equity are becoming increasingly expensive – the interest on the €4.5bn silent participation I granted by the Economic Stabilization Fund (WSF) will increase from the current 4.0% p.a to 9.5% from 2027. Lufthansa is therefore asking for Authorized Capital C in the amount of €5.5bn (the size of the WSF silent participation I & II), or 2,148.4mn shares – although no decision on the amount of the actual capital increase has yet been reached. Shareholder authorisation will enable the airline to initiate a transaction at short notice and “with minimal execution risk” that will allow the airline group to replace the silent participation from the WSF.
Lufthansa states that the authorisation would enable the airline to “flexibly tap an attractive window with demand for Lufthansa shares” and provides clear use of proceeds since it would be linked to repayment of stablisation measures.
In his prepared remarks, Spohr has also confirmed that no dividend will be paid due to the record losses in 2020. He also refers to further job losses and highlighted the closure of SunExpress Germany and Germanwings, and the continued negotiations regarding the intention to close the German operations of Brussels Airlines. Spohr also confirmed that since April 15, the airline group has also been offering a volunteer program for Lufthansa ground employees, which will soon be followed by another for cabin staff. “Believe me, measures like these hurt,” says Spohr. “After all, as a service company, our employees are our capital. But the truth is that we will probably not approach pre-crisis capacity again until the middle of the decade.”
In a continuing bid to become more efficient and address environmental concerns, Lufthansa retired 115 less efficient aircraft in 2020, and plans to phase out all aircraft older than 25 years. The airline has also just order a further five 787-9s (see Europe News below).
“In the case of our long-haul aircraft, the accelerated fleet modernisation will result in avoiding around 900,000 metric tons of CO2 emissions in the next three years alone,” reads Spohr’s speech. He also comments on the Sharkskin technology announced yesterday and the increasing use of Sustainable Aviation Fuel.
Looking ahead to the recovery, Spohr adds that depending on European and global developments, the Lufthansa Group is in a position to put “up to 70 percent of its pre- crisis capacity in the air, given the right demand even in the short term”. And, on an annual average, the airline currently expects capacity in 2021 to be around 40 percent of the pre-crisis level.