Lufthansa plans far-reaching restructuring to repay bailout

FRANKFURT: Deutsche Lufthansa AG signalled the start of a company-wide revamp spanning job cuts to asset disposals to help repay its 9 billion-euro (US$10bil) bailout from the German government.

Europe’s biggest airline would slash employee expenses and look at spinning off non-core units in an effort to reduce costs and bolster cashflow as the coronavirus crisis depressed revenue, it said in a statement. The group had a 2.1 billion-euro net loss in the first quarter.

“In view of the very slow recovery in demand, we must now take far-reaching restructuring measures to counteract this, ” chief executive officer Carsten Spohr said in the release.

Lufthansa’s pledge to slash costs is likely to lead to a struggle with Germany’s powerful labour unions, which in the years prior to the pandemic thwarted efforts to trim expenses with pilot and cabin-crew strikes. The situation may be complicated by the state’s 20% holding in the airline as part of the pending rescue, which will involve government representatives in its affairs.

The company set out more precise cuts for its foreign airline units, where labour protection laws are less stringent than in Germany. Austrian Airlines will see staff costs pared by 20%, with Brussels Airlines suffering a 25% reduction in the workforce and a 30% cut to its fleet.

While Lufthansa has said its liquidity position is becoming “urgent, ” the statement gave no details on cash levels. The deal will dilute the holdings of current investors, though they’re expected to back it in a June 25 vote rather than risk insolvency.

Airlines worldwide are reeling as the Covid-19 pandemic brings decades of travel growth to a shuddering halt, with industry executives suggesting it may take several years for demand to return to previous levels, especially in the long-haul markets targeted by premium carriers such as Lufthansa.

At the same time the German carrier, previously regarded as among the most stable and successful, is negotiating bailout that’s the biggest for the industry so far.

Its predicament highlights both the impact of the virus and Germany’s willingness to come to the aid of its leading businesses. — Bloomberg

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