March 19, 2020 / 6:21 AM / 21 days ago

Airline industry may not survive without state aid: Lufthansa

BERLIN (Reuters) - The airline industry may not survive without state aid if the coronavirus pandemic lasts a long time, Lufthansa (LHAG.DE) warned on Thursday, predicting it would emerge into a “different world” after the crisis.

FILE PHOTO: Empty Lufthansa ticket counters are pictured at Munich's international airport, as the spread of the coronavirus disease (COVID-19) continues, in Germany, March 17, 2020. REUTERS/Michael Dalder

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.

“Our business, and I speak with 30 years experience, is in an extraordinary situation,” CEO Carsten Spohr told reporters.

“For weeks, hardly anyone has wanted to fly. Now, hardly anyone can.”

The German group stopped short of requesting state loans, however, saying it was cutting costs where it can so it can ride out a crisis that has forced it to ground 700 planes and slash passenger capacity by 95%.

“We would seek active support from the state when this is necessary. This is not yet necessary,” Spohr said, adding Lufthansa was in discussions with German state development bank KfW.

Global airlines group IATA has forecast the industry will need up to $200 billion of state support.

“This crisis will sustainably and structurally change our industry,” Spohr said. “But we believe that we are well prepared and have experience in crisis management.”

Lufthansa, whose stock market value has fallen by nearly half this year to 4 billion euros ($4.3 billion) was protected by German law against hostile foreign takeovers, Spohr said in response to a reporter’s question. Its shares rose by 5%.

Around 60% of Lufthansa’s costs are variable - such as fuel - and they fall away naturally as operations are wound down. More savings are being sought via short-time work, with the help of German government aid payments designed to minimize layoffs.

Lufthansa employs 138,000 staff, more than half of them in Germany.

Spohr also said the company was in talks with planemakers with Airbus (AIR.PA) and Boeing (BA.N) about whether to take delivery of aircraft it has ordered, and on payments.

“We had planned this year to receive a new plane every 10 days - now we don’t need any,” he told reporters.

The desperate outlook came as Australia’s Qantas Airways Ltd (QAN.AX) told most of its 30,000 employees to take leave and India prepared a $1.6 billion rescue package to aid carriers.

RELIEF FLIGHTS, CARGO OPERATIONS CONTINUE

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 mobilizing additional capacity for air freight transport,” said Spohr.

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 Thursday.

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.

“We own 86% of the Group’s fleet, which is largely unencumbered and has a book value of around 10 billion euros,” said Chief Financial Officer Ulrik Svensson.

The executive board will take a 20% pay cut, Lufthansa said, confirming 2019 results released on March 13.

($1 = 0.9170 euros)

Additional reporting by Ilona Wissenbach, Kirsti Knolle and John Miller; editing by Edward Taylor and Mark Potter

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