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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)

  • Samuel says:

    Lufthansa deserves to go bust. They are too dominant on the European market and are squeezing their subsidiearies for example with their idea of merging Brussels Airlines with Eurowings, an LCC. Lufthansa could start by selling their subsidiaries, that should give a good amount of cash. And if they are confident they have a good business, they should go to commercial banks. Relying on the taxpayer for such a bailout is arrogant.

    • Don says:

      SN and EW are worth nothing. Very expensive legacy crew in SN, clapped out worthless airframes. Who would want to buy that except the Belgian government? Has it ever made a decent profit?

      The vast majority of SN’s network could be flown by Ryanair and Wizz. I’d imagine the only part of SN that makes any cash is the African network which is governed by monopoly bilaterals that will have very little feed to the European network that SN maintain.

  • Don says:

    Why not let it go to the wall? Right now. In the time taken to slim it down, reemploy staff, there might actually be some pax who want to fly.

    Why bail it out now to then have the situation continue to go on for months. Burning taxpayers cash for nothing. Screw the expensive legacy staff contracts. Sell the subsidiaries which were terrible acquisitions. LH haven’t made a single decent purchase. BD (cheaper just to buy the LHR slots) OS, SN all rubbish, we can argue about LX.

    Stop dumping fares!

    It doesn’t have a god-given right to exist and finally a genuinely competitive airline can take its place using a government loan a fraction of what they are asking for with a huge chance of success. Germany is one of the few EU countries that has the potential to have a profitable home carrier but not straddled with pensions and all these past awful decisions and liabilities

    • Rob says:

      Germany is actually the WORST country in Europe if you want a profitable home carrier, because it has effectively four key cities of equal standing – Frankfurt, Munich, Dusseldorf and Berlin.

      If Manchester and Edinburgh were genuinely equivalent to London we’d have a similar issue.

      • Heathrow Flyer says:

        The benefit of the U.K. having a primate city.

        • Nick_C says:

          I felt London was a primate city. That’s why I moved out 😉

        • Thomas Howard says:

          Primate city? The racism smh.

          • Lady London says:

            Not unless there’s an inappropriate link already in your head. That didn’t come from what the poster said.

          • Goodboy says:

            Seems to be in lots of people heads though? Of all races.

      • Don says:

        I don’t agree. In the UK BA has to force pax to connect via LHR cos there is no business to run point to point from the regions or a Eurohub. BA prices have got to the point where they are hardly gunning for connecting pax these days. It tried and failed outside London, heck even LGW is a fledgling case. The UK focusses it’s economy around the South East and only the SE. Moving stuff to the North is a token effort. Germany has multiple industrial heartlands, Ruhr, Hesse, Bavaria and one day, coming faster, not just poor but sexy, Berlin!

        LH Group cover the four cities you mention except BER which is an outlier since the War and is still a very SH market. They moved DUS to EW and 4U to reduce cost and in the meantime AB went bust there as well. I recall one of the biggest issues that LH had with their small TXL SH operation was just the cost base they operate from. They couldn’t sell TXL-CDG for €39 like EZY could.

        That brings me back to my point. Shut it down, start again. If you keep it going you’ll have never ending staff disputes when you try to reduce their salaries. This is once in a lifetime opportunity. Pilots and crew will be ten to the dozen, desperate for work and will take what they’re given.

        MUC and FRA work quite nicely for LH. They’re an example of not needing to focus on one city like BA and LHR. Each city can stand on its own with point to point. It’s not just capacity reasons that MUC has certain routes that FRA doesn’t.

      • FLYGVA says:

        You are absolutely right – additional problem, we (I am German) are a federal state. This means, the federal state have additional power and force companies to offer services, even if they are not really able to make money on certain routes. This is necessary to get the politics behind you. And we are not centralized as France is, also not in regard to our transportation network. Most high speed rails are linked to Paris.

        Unthinkable in Germany. Also unthinkable for many to have a connection on a domestic flight. A direct connection from the capitals of the federal states to other countries are a factor for the importance.

        Düsseldorf – capital of the state of North Rhine Westphalia which has the most inhabitants – was not really happy, as LH reduced their presence in DUS. BA / KL / AF have it much easier, as their have only one hub. Which would not happen …

        We want to have full service on our country, but do not want to have the noise, paying high prices for fares. Of course, we want to have flexibility, quality. Many people pay a premium to fly our flag carrier, but LH exaggerated a bit in regard to the “premium” and the lack / reduction of service.

        In so far, using Eurowings was a good way to reduce costs. Unfortunately this “powered by Lufthansa” did not work as it should be, as the problems in the take over of Air Berlin caused a lot of delays – and fell back to Lufthansa.

        And LH considers itself still as one of the best airlines which one of the best products.. This did not work that well in the last couple of month.

        Shutting LH down would not work … they are too large and have a too long history. I doubt that the Swissair / Swiss approach would work (again).

      • Spaghetti Town says:

        Thats why we’re easily able to compete with New York. The UK has focused all the effort in one city. The rest are better off being satellite cities.

        • Mr(s) Entitled says:

          London is almost a small country. It competes with other uber cities such a New York and Tokyo.

          Rather than considering Manchester, Birmingham, Edinburgh etc as satalite cities we would be much better off considering them as competitors at Tier 2 level. Compete with Boston, Stockholm, Tel Aviv, Madrid etc.

          It would massively benefit the country if these cities grew their respective GDP’s. Pulling investment from London or New York is hard. Pulling it from elsewhere? Why not. Think outside of the four walls/island.

          • Spaghetti Town says:

            Fair point that actually.

            Tokyo is a monster city. Never been but from what I hear. Always wanted to go to Japan.

        • J says:

          And where has that got the UK? UK is a basket case vs Germany, parts of the UK poorer than anywhere in Germany or the Netherlands. I don’t think London being so mighty and dominant, sucking life from the rest of the country is such a good thing… Interesting story below, it’s shameful how divided the UK is and how big the gap is between its rich and poor regions.

          • Lawrence says:

            Guardian? Really? Honestly….

          • Spaghetti Town says:

            I would of read the article if it came from a more balanced paper. Mirror, Star, Sun, Mail, Guardian is just garbage.

          • JohnG says:

            Oh come on. The point was stats from an external source, unless you think The Guardian will have lied in reporting them (which may just be possible based on the ridiculousness of that alternatives list) then you’re just blathering on about your view on newspaper bias rather than actually discussing the point you are responding to.

          • Spaghetti Town says:

            @ John G. The guardian is rubbish. very left wing much like the sun and mail are very right wing.

          • J says:

            The point is that the UK is a basket case compared to Germany. The UK likes to compare itself with Germany and the Netherlands but it you strip out London and the South East it’s not even in the same league. Add a hard brexit to the costs of coronavirus and I expect the UK will fall even further behind, perhaps even needing the help of the IMF again.

  • FLYGVA says:

    There is one thing – as far as I know on April 29, 2020 will be held a video conference with high ranked officials of the transportation ministries in the EU along with Norway, Switzerland (EFTA countries) and the EU. Unfortunately no agenda is published yet ( One of the topic is far as I am informed the voucher as the rule for canceled tickets in change to the regulation (EU) 261/2004.

    EU Commission says, money is the rule and not a voucher.

    There are letters send to the COM by NL and DE as far as I know. (Dutch letter is Support in favour of voouchers come also from BE, IE, ES and FR.

    The various reports about LH facing insolvency could be a way to put pressure on the EU to either accept vouchers or ease the legal restriction for support by a (German) Government for financial support (which could mean nationalisation).

    This is of course highly speculative and I think I am wrong on this … but the timing fits very well …

  • Keith Young says:

    Was due to go on one of those Swiss deals today but that got cancelled and there is no way I can get my money back despite the assurances on the Swiss website. The only chance is my credit card company but I suspect that isn’t going to work although I’ll give it a go. We did send Swiss an email, the trip was booked on the Swiss website

    Please note that the flight cancellation was made by Eithad Airways, the operating carrier of your flight whom you may contact regarding the possible refund.

    I have checked, we were booked on LX4200 from Zurich to Abu Dhabi on Swiss.

    Any suggestion greatly appreciated.

  • Peter North says:

    Lynne Powis at the government presser today is like listening to someone reading the telephone directory.

  • Matthew says:

    I have no sympathy for LH. The way they have behaved over Covid-19 cancellations is poor. My flights from FRA to BRS were cancelled, they did not even send an email to inform me. It is impossible to get through for a refund. I have tried a chargeback claim via credit card, they came back saying LH can offer a new flight later and their T&C’s mean they can avoid repaying.
    I have now written to the card issuer stating section 75 of the 1974 consumer credit act, makes them jointly liable, and LH cannot insist on a new flight booking as EU regulations overide their T&C and give me the right to a refund. The card issuer has to give me a letter of stalemate if they refuse a refund again, then I can sue them, or go to the ombudsman. “Which” has a good template letter to start a claim for section 75 rights.
    None of this hassle would be needed if LH repaid the cancelled tickets they are required to do by law. I will never book with then again if they survive.
    Everyone stay well and safe.

    • Don says:

      Matthew who is your card issuer? I had no issues with Amex.

      • Matthew says:

        It is MBNA, now owned by lloyds. They were very good when Fly BMI went through. I think they must be swamped by claims, and dont want to upset LH, but who cares, the law is the law.

        • Lady London says:

          And also @ Matthew strictly speaking EU261/2004 statute says they have to give you a refund within 7 days.

          Most of us would give more. But if you’re faced with this unfairness and it’s already more than 7 days, or if the airline says their process will take longer than 7 days,vthen they are already in breach of the statute so that means you can ask your credit card company.

    • Paul says:

      It’s helpful to know this. I found a reasonable NCL – MUC – BKK flight in Premium Economy for July.

      Probably won’t book it now. I was relying on a refund in case the flights wouldn’t go ahead.

      Worrying times. The alternative is AF / KLM in economy.

      • J says:

        Perfectly safe to book with LH, not like Germany has another airline – LH is very protected, the government will ensure it is OK. Although would not have any worries booking with AF/KLM either.

  • Alex Sm says:

    My colleague wrote an interesting blog the other day about the conditions which EU governments (Italy, France, Austria) attach to airline bailouts. Most relate to climate and green obligations. What is the conditionality of a potential German bailout for LH, do you think?

  • Jim says:

    Interesting stuff, Rob. Could you link to the Citi note? Thanks.

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