Lufthansa has launched a € 2.14 billion capital increase in an attempt to strengthen its equity position and repay part of the aid received by the German government during the pandemic. Starting from Wednesday until October 5, just under 6 million new shares will be offered to shareholders, doubling the current number, at a subscription price of € 3.58 for each new share, corresponding to a discount of 39.3 % on the theoretical price ex law (Terp).
The operation is fully underwritten by a consortium of 14 banks. In addition, some funds managed by BlackRock have entered into a subscription agreement for a total of € 300 million and are committed to fully exercise their subscription rights. All the members of the company’s board of directors have also undertaken to participate in the capital increase and to exercise all subscription rights in full.
The airline said the proceeds will be used to reimburse 1.5 billion euros of Lufthansa’s participation in Germany’s Economic Stabilization Fund (ESF), with the aim of fully repaying the second tranche of aid in the amount of 1 billion euros by the end of this year.
“The stabilization package agreed with the ESF has enabled Lufthansa to protect the jobs of over 100,000 employees. We have always made it clear that we would only keep the package for as long as necessary. We are therefore proud to be able to maintain our promise and pay back the measures faster than originally planned, “commented the managing director, Carsten Spohr.
The German company was saved from bankruptcy by the German government by receiving a total of € 9 billion aid package in 2020, when a large part of the fleet was left on the ground due to the Covid-19 pandemic. In this way, Lufthansa closed the second quarter of the year with a loss of 756 million euros, doing clearly better than the red of 1.49 billion euros reported in the same period last year.
Looking ahead, “we are preparing for another long, cold winter, obviously caused by the fourth wave of the pandemic,” Spohr said last month. However, starting this month, the carrier will return to offer 90% of destinations, reaching a total capacity of around 40% of pre-crisis levels for the whole year. “In 2022, the exact numbers will obviously depend on the reopening of the United States and China”, the CEO pointed out, “the capacity should rise to about 50% of pre-pandemic levels in the third quarter, from about 40% at the end of. June”.
After the announcement of the capital increase, the Lufthansa share rises by 0.48% to 8,249 euros on the Frankfurt stock exchange not only because the amount of the recapitalization is less than the rumored 5 billion euros, but because the move “It appears aimed at refinancing state aid to allow for other business simplification plans, namely monetizing its maintenance business, Technik, and selling the remaining Catering business, LSG,” according to Berenberg. “The amount of the capital increase appears modest if aimed at deleveraging towards an investment-grade balance sheet, roughly corresponding to the expected free cash flow for 2022,” added Berenberg.
For UBS, Lufthansa’s move is diluting to earnings per share, but will strengthen the airline’s balance sheet. Standard and Poor’s, in light of the slow recovery in air traffic, expects the airline to deploy only 40% of its pre-pandemic capacity this year. “This will limit its ebitda generation and offset the positive effect of the share issue,” he commented. Furthermore, European short-haul traffic underwent a strong recovery in July and August 2021, fueled by pent-up demand from tourists, in this context Lufthansa’s cargo business continued to perform exceptionally well. “Despite this, the resumption of passenger volumes on long-haul routes continues to delay, due to severe travel restrictions”, concluded Standard and Poor’s that it has a BB- ​​rating on Lufthansa. (All rights reserved)
