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Lufthansa on verge of bankruptcy without a bailout – official statement

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Shockingly, it appears that Lufthansa has come to the end of the road.

Or, at least, it has come to the end of the road without an immediate bailout of up to €10 billion.  Since this is Germany we’re talking about, you can be 100% certain that the money will be handed over.

It is, regardless, amazing to see one of Europe’s big three airline groups on the brink.

Lufthansa on verge of bankruptcy without a bailout

On Thursday evening, Lufthansa Group issued a trading statment.  You can read it here in English.

There is no point looking at the Quarter 1 trading numbers because they are meaningless given the current situation.  The key numbers relate to the cash position and its immediate liabilities.

The group currently has €4.4 billion of liquidity, which sounds OK.

Monthly cash burn, looking at Citi estimates published yesterday, is €984m.  Not good.

That is just the beginning, however.

The current total due in the next few weeks for:

  • ticket refunds
  • bills due for payment
  • interest and loans due for repayment
  • payments on ‘out of the money’ fuel hedges

…… is estimated at €4.9 billion.  The airline admits that it has no chance of borrowing additional money from banks.  In plain English, the airline is insolvent.

In financial speak:

“However, in view of the business outlook, existing multibillion 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.”

But there is good news, unless you are a German, Swiss or Austrian taxpayer:

“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 Management Board is confident that the talks will lead to a successful conclusion.

Lufthansa on verge of bankruptcy without a bailout

What is weird is that Lufthansa’s shares still appear to have value.

Last year the airline made €2 billion EBIT (profit before interest and tax) but is sitting on €9 billion of pension debt and €7 billion of net debt (pre-crisis, now far higher).  The Government bail-out is estimated at between €3 billion and €6 billion, although on Friday there were discussions of rounding it up to €10 billion.  Add all this up and you are easily looking at €20 billion of liabilities.

The shares have no value unless the business is worth over €20 billion, and that isn’t clear even at €2 billion of EBIT.  Heaven knows how many years it will take to get back to 2019’s €2 billion.

On Friday the airline said that it no longer expected to return to 2019 traffic levels until 2023, and would be firing 10,000 staff and dropping 100 aircraft as soon as it resumes flying.  This is an increase on the estimate a couple of weeks ago when Lufthansa forecast 7,000 redundancies and the retirement of ’70+’ aircraft.

In case you’re wondering, below are the Citi estimates for how long the major European airline groups can last assuming that they continue to pay their bills, refund tickets and pay interest and debt as they become due:

  • Air France-KLM – 3 months
  • easyJet – 15 months
  • IAG (British Airways) – 8 months
  • Lufthansa – already technically insolvent
  • Ryanair – 18 months
  • Wizz Air – 22 months

Comments (166)

  • Vistaro says:

    Anyone else think that legislation should be introduced for travel (and perhaps other sectors) that mandates money received for future bookings should be held in a segregated account held on trust that was not released to the travel provider until the booking had been completed? This happens in other industries and it seems wrong that the customer acts as the bank. I do appreciate that this means the company may have to get finance elsewhere which in turn may mean a higher cost of finance which then could mean higher prices.

    • VJ says:

      Not how money works.

    • Oli says:

      Why would you do that when customers are protected by S75?

      • Brighton Belle says:

        I bought a sofa and the shop couldn’t supply it. There was no argument I couldn’t get a refund. Why should airlines be any different? You get my money when you deliver my flight. I am not your bank and I expect you to ringfence my money so it can be returned if you screwup. No vouchers, no weasel words, just refund me. S75 is only there because the credit card doesn’t trust you to pay me back.

        • Melonfarmer says:

          Exactly. I’m currently subsiding a French/Dutch airline group from the UK.

          I read a comment elsewhere that anyone who clapped for the NHS yet voted Tory was an effing hypocrite: I wonder how many Brexiteers are suddenly very keen to assert their EC 261 rights?

          • Anna says:

            There was no noticeable dissent when the government elected to retain the majority of EU legislation (which the UK had a hand in formulating, after all), so your comment makes no sense.

          • Spursdebs says:

            Stop trying to sow diversion, that argument has been done to death, and you’re take on it makes even less sense than normal.

          • Bazza says:

            Pay no heed to idiots make random comments on anything!

        • BJ says:

          Just sent a PC for repair and upgrade. The company is happy to do the work, return the PC then invoice me as usual despite the current circumstances. Full marks to them for that. I know it is on a different planet from running an airline but I have some sympathy to the view that the travel industry should provide greater customer protections than it does. Most of my life I have flew ‘flag carriers’ 95%+ of the time. Almost all of the flights I have taken were full or close to being so. Given this, the fact that these major companies have so quickly found themselves in deep financial trouble suggests to me that there must be something far wrong with their fundamrntal operational model.

          • Heathrow Flyer says:

            That’s a bit like saying if all supermarkets had to close their doors for 6 months, but still had to pay all their rent, rates, wages, money owed to suppliers etc. How quickly would Waitrose be out of business?

            A complete global shutdown that no one could have predicted hardly points to an unsustainable business model.

          • Genghis says:

            But what is it about Ryanair and Wizz’s financial structure which enables them to last a lot longer than AFKLM?

          • Rob says:

            Simple, legacy free, businesses.

          • Doug M says:

            A much lower cost base?

      • TGLoyalty says:

        Unfair for the card company to have to cover the costs of an airline going bankrupt.

        Costs like these are why offering miles etc takes a hit with only a 0.3% interchange fee.

        Someone somewhere has to pay this cash out. I think there will have to be a look at how the airlines are operating after this. Looks like they’ve learnt nothing after 2008.

        • Genghis says:

          Rob has previously mentioned card companies holding back cash that would otherwise be paid to the retailer. Anyone know of any good articles that describes this process?

          • Happy Tim says:

            Hi Genghis,

            Here is an article from Bloomberg which explains the overall process and key players:


            However, I’m astonished that there appears to be very little legislation currently defining when cash should be liberated to airlines considering their up front fixed costs that Rob described yesterday. Perhaps another update to the CCA required here?

          • RussellH says:

            I never had the facility to take online card payments, but I did read the bumpf that WorldPay sent me.
            Even though I had been a customer for some years, and right from the very beginning always got card payments (normally CNP) into my a/c at the same speed as cheque payments, I was told that for online I would have to wait for 6 months for monies to be transferred to me and the Merchant Acquirer fee would be of the order of 4-5% c/f 1.8% for CNP.
            I am sure you understand why I never bothered with accepting online payments!

          • Genghis says:

            Thanks v much Happy Tim. Interesting. Any thoughts on whether airlines will change to not be so reliant on unearned revenue to fund working capital?

      • Ken says:

        S75 only exists because of legislation.
        Nothing to do with the benevolence of credit card companies.

      • Yorkieflyer says:

        Some more prudent tour operators historically put customers pre travel payments in a trust account. Sadly most would rather use these funds as working capital

        • RussellH says:

          There have been three approved methods of financial protection in place in the EU for tour operators customers since 1992 – trust accounts are one. The others are bonding (ATOL, ABTA, ABTOT, AITO etc) and Financial Protection Insurance.
          In the UK, you must use ATOL if you sell air travel as part of a package. Failure to use ATOL is a criminal offence.
          Trust funds will obviously play havoc with a firms cash-flow.
          The owner of another firm once told me that the good thing about trust funds was that a supplier would also get refunded, butI never saw how that could actually be the case if the monies in the trust a/c were customers funds!

        • Mikeact says:

          A bit like Virgin Australia Velocity points/miles…..all held in a separate Virgin company and run by a trustee for the members. If no resolution is found to the Virgin Australia debacle, then the trustee has said that one option would/could be to pay members for their holdings, but at what price is not known.

      • RussellH says:

        S75 is purely UK.

        I have talked to German friends about S75 and they have been appalled, asking why banks should be supporting badly-run businesses…

        • TGLoyalty says:

          They aren’t the law is to support the customer who has taken out a credit product.

          • RussellH says:

            Effectively it does support the badly-run business, though. I can undercut you and take money from customers, even though I know that I may not be able to deliver, because I know that the credit card firm will pick up the bill.

    • Spursdebs says:

      I’ve booked cruises with Trailfinders. My money is held in a client trust account and is safe if they went bankrupt. I’ve had two cruises cancelled due to Covid but instead of refund I’ve rebooked for Jan 2022 ( got to have something to plan and look forward to) they are holding £6k of my money.

      • BJ says:

        I learned funeral directors also ring fence monies for prepaid funeral plans with well-established financial service providers. Just for clarity Debs, I’m not looking forward to that just as much as you are looking forward to your cruises.

        • Spursdebs says:

          I knew about the funerals as I’ve done all my estate planning. The woman who has done all the work says she is so busy with work since Covid 19! I think that came about from years ago when a lot of pre paid funeral companies took money went bust people lost money so legislation was brought in to protect consumer.
          I’m determined to finish my long haul adventures on a big bucket list trip,South America and Antarctica hopefully!

        • Rob says:

          They do. That’s the law though. They CAN cream off investment gains though – not sure what happens now that their will be investment losses.

          • Bob says:

            For somebody who often promotes their ex-city background, you know exactly what happens now. They hit a deficit and then have no funds. It’s the exact situation as with pensions. Historically, surpluses were creamed off, but the companies were / are still less than quick to fund deficits, hence the massive black holes everywhere.

          • Rob says:

            What I meant is, I don’t know if the funeral companies are legally obliged to make up deficits or not and whether having taken a surplus makes a difference to the answer.

          • TGLoyalty says:

            Like all these funds they’ll be writing checks hoping people keep paying in and the market turns in their favour again.

          • Lady London says:

            @Bob do not worry I read somewhere that 4% inflation would remove all the existing massive longstanding pension deficits employers have got away with for decades now in UK pension schemes. We won’t have long to wait.

    • AJA says:

      Isn’t that effectively what the credit cards do? They hold back at least a portion against their potential s75 liability which is why the airlines are so keen to give customers a voucher meaning the liability is extinguished and then the credit card company releases the funds to the airline.

      It does show that airlines rely on a stream of passengers paying up front which works well as long as they continue to fly and they only have a few IRROPS incidents.

      I wonder whether the auditing firms will apply more stringent tests to liquidity and solvency in future?

    • Mervyn Miller says:


    • RussellH says:

      British Airways has always campaigned very vociferously against having financial protection in place for clients funds.
      In the UK that would almost certainly mean ATOL protection, and BA see that as them effectievly funding smaller, weaker competitors.

      • Lady London says:

        Then we need a ratio of forward customer payments to go into escrow, say 80%. (which would be generous to the airlines). Funding costs would be one off as if the business continuous it would revolve. If forward business declined the airline would be required to seek finance proactively.

        Which is a sounder way of running a business than taking everyone’s money, not providing what was paid for then saying ” too bad about the law, we’re keeping your money anyway so we can keep on trading using your money because we didn’t obtain finance for our business correctly”. Which is what we have now. Needs to change even if the airlines do collapse (and lots of them should).

        Intelligent taxpayers are getting tired of privatised profits ( not just shareholders but more importantly, management), publicly-funded losses

      • Lady London says:

        @RussrllH given the privileges British Airways has enjoyed such as protected slits at Heathrow, taxpayer bailouts on more than one occasion, continuing to be allowed to claim the role of flag carrying airline for the UK, actually I don’t mind if they get forced into an ATOL type scheme or levy arrangement that means indirectly they might be providing some subsidy to smaller competitors, new entrants to the industry and players who are prepared to provide a service on regional routes that are in the national interest even though not profitable in themselves.

        Bring it on.
        And no dividends and no staff EPS bonuses unless the taxpayer receives the same alongside.

        • RussellH says:

          Just seen this.

          I have no objection to to a compulsory scheduled airline fare protection scheme. I think that the travel trade would support any such scheme.
          But BA have the big guns and the lobbying power against the likes of ABTA.

    • ADS says:

      “ATOL protected” was a way of achieving this with lower overheads for tour operators

      maybe we need a similar version for scheduled airlines – SAOL protected ?

      people comparing purchasing a computer for immediate delivery and paying for flights which may not take place for 12 months are not comparing like for like !

  • Matt says:

    So are all those points possibly about to turn into a pumpkin?

  • Thomas Howard says:

    Accumulating all that debt with no reasonable prospect of paying it down in a period in which you wouldn’t expect another economic downturn? Either they have another huge bailout in ~10 years and they’ve turned into Alitalia or we go through a postwar like boom and interest rates rise making refinancing a bigger millstone. Sounds terminal.

    • BJ says:

      I’ve always understood (rightly or wrongly) that Germans individually and as a society largely frown on personal debt. If this is true it would be interesting to learn from some German readers how this might shape government responses to a bailout using their tax €.

      • HAM76 says:

        We also want the government to take responsibility for our well-being. My guess is that Germany ends up being a major shareholder of Lufthansa much like it did with Commerzbank in the financial crisis (it still holds 15%). Sooner or later we will raise taxes to recover the money we spent on Lufthansa and many other companies. Historically we tax the wealthy on income and increase VAT to tax lower incomes.

        I doubt that Lufthansa is going away completely. From most cities Lufthansa and their subsidiaries are the only airlines offering domestic flights. Easyet has a few domestic flights from/to Berlin, but that’s about it.

        • J says:

          From Berlin, LH/Eurowings are of little use, very limited number of direct flights and within Germany the train is usually a viable option.
          Air Berlin was a big loss and at least offered a bit of competition and some additional routes which haven’t been replaced.

        • Alex Sm says:

          Bring Air Berlin back! It was one of the best airlines ever

  • Davef says:

    Does anyone have an idea of the projected solvency of Aer Lingus?

  • Melonfarmer says:

    Interesting that Lufthansa are listing their ticket refund liabilities.

    KLM are still refusing to comply with EC 261.

    • Aron says:

      Ryanair are another who are doing their hardest to delay refunds.

      I had a few flights booked this year with them, applied for refund as instructed by them. A month letter got some emails with vouchers to use within the next 12 months, on flights which have gone up in price considerably. Yeah no thanks, charge backs with the CC company raised.

      • MarkH says:

        Same happened to me. Unfortunately I’d paid through Curve as it was in EUR.

        I’ve raised a dispute but not sure what my chances of success. Anyone have any joy with Curve’s S75 equivalent?

        It’s disgraceful how Ryanair have accepted the refund requests, completely ignored them and then say if you still want a refund it will only be processed “when the COVID-19 emergency has passed”.

        • TGLoyalty says:

          Curves protection is really just chargeback. It’s going to be useless unless Ryanair decide not to fight their case.

          I received the voucher but I’ve also applied for a refund which seems will be post COVID19. I’ll be phoning Amex to start s75 in a few days as the flight dates would have passed and no flights were running.

        • Lady London says:

          cheeky, cheeky b*st**ds.
          Straight to s75 on credit card.

        • Alex Sm says:

          The same happened to me re Amex S75 request after Flybe collapse. Despite mentioning everywhere on my claim that I’m doing it under S75, it was treated as a chargeback request and I only got the original ticket price back, not a penny more

    • J says:

      Well a ticket refund is now going to be paid for with taxpayers cash (at least for every country now giving substantial aid to airlines so Netherlands, France, Germany, Italy and more). Not really surprising the Dutch and Germans are lobbying the EU to retrospectively water down the rules so a voucher can be offered. As a German taxpayer I’m selfishly inclined to agree. The EU has so far held firm to its credit. As far as Lufthansa goes, no question that they’ll get more money from the government.

      • Alex Sm says:

        Vouchers are fine if they are issued not as cash equivalent but as a flight equivalent, i.e. the airlines guarantees you a seat on the date of your choice in the same class on the same route. This would be a nice compromise

  • SWWT says:

    What does ‘bailout’ mean? Is this a loan, to be repaid, or is it a debt for equity swap? This is the language being touted in the current UK discussions re BA, Virgin et al..
    My understanding of EU law was that state gifting money to businesses -in this case an airline, is not permitted because it is anti-competitive. Case in point is of course Alitalia.
    Perhaps I missed something in the article…?

    • MD says:

      Good question. Early days and it doesn’t seem to be clear yet. Sounds like Air France are getting straightforward loans though: “Air France will get 3 billion euros in direct loans from the French state and a 4-billion-euro bank loan guaranteed by the state, the airline said in a statement.”

      KLM look to getting more vague “loans and guarantees” but more ominously for them “The Dutch minister said the support would come with strings attached. “It’s tax money from us all and that means we will ask for something in return.””

      I know if I was a French or Dutch taxpayer I’d be wanting something in return for my money i.e. equity!

      • Lady London says:

        Not for nothing are Netherlands gilts valued so highly. For now, at least.

    • meta says:

      EU has relaxed the state aid laws due to covid-19 so that governments can give bailouts. The governments will also get some aid from EU funds once they agree on the sum. We are talking about 2 trillion euros. Also I believe that the immediate rescue package of about 500 billion euros has been agreed already this week.

    • Mikeact says:

      More like a grant instead of a loan…if it’s never eventually paid back.

      • Lady London says:

        But do not worry until the loan is paid back no profits will be shared with the taxpayer. And in subsequent years all profits will be privatised. Only losses are relevant to proposed transfers between airlines and government/taxpayers. Profits are not relevant to any proposed transfer between airlines and government/taxpayers.

        • Alex Sm says:

          Moreover, many governments also attach non-financial obligations and commitments to these bailouts

  • Mike says:

    How are they still burning through nearly a billion euros a month?! Leases sure, but the employees should be on (government funded) furlough… Unless someone committed to buy a load of fuel whether flying or not…?

    • Heathrow Flyer says:

      I was wondering how their out of the money hedges work – surely they are only taking a fraction of their usual fuel requirements (albeit at a higher hedged price)? So their exposure here is limited.

      Or do they still have to take the physical product? Though I can’t see how they’d be able to store it.

      • TGLoyalty says:

        Take or pay deals don’t mean you end up with the actual good/service though.

      • Rob says:

        No oil exists. Lufty and the bank on the other side simply agree to hand over the price difference based on y million barrels per day.

        It’s like you agreeing with me to hedge the price of 24 Weetabix at £1.40 for one box per month. Each month you go to Waitrose, check out the price and then one of us pays the other the difference. It doesn’t matter if you buy Weetabix or not, however.

    • TGLoyalty says:

      Rental payments
      Lease payments
      Loan repayments
      Storing and maintaining 100’s of planes
      Running core services like call centres, websites , IT etc

      There are considerable “fixed” running costs of a multi national airline group even when you can furlough staff directly related to flying operations. Lufthy are actually still flying passengers so not all staff have been furloughed.

    • ChrisC says:

      Are all countries doing tax payer furlough schemes though?

      And even if they are many companies are still topping up salaries to their usual levels so can can be expensive if you have high paid staff.

      And depending on the company and country things like medical insurance still needs to be paid for

      Plus there could be property rents and taxes to pay if there aren’t schemes to defer those sorts of payments. In the UK for example only small businesses are getting rate relief for example.

      And offices need heat and light and water and it costs money to park planes at airports and so on

  • Alex M says:

    What have Buffet said about tide and swimming naked? 😉

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