Lufthansa Grounds 95% Aircraft To Avoid Cash Crunch

Lufthansa Grounds 95% Aircraft To Avoid Cash Crunch
March 20, 2020


German airline Deutsche Lufthansa AG (OTC: DLAKF, DLAKY) posted a decline in profit and margin in fiscal 2019 on Thursday. This, despite an improvement in the top line. Moving forward, the largest German airliner stated that it is not in a position to forecast the likely decline in FY 2020 adjusted EBIT (earnings before interest and taxes) because of the COVID-19 outbreak. The company had earlier stated that its adjusted EBIT for FY 2020 would be considerably lower than last year. Despite the weak results and gloomy outlook, the stock gained $0.42 or 4.68% to close at $9.39.

The Cologne, Germany based company posted FY 2019 revenue of €36.40 billion, an increase of 2.5% from the prior year’s €35.50 billion. Unit revenues of passenger airlines dropped 2.5%, adjusted for currency conversion impact, primarily due to overcapacity in domestic markets.

For FY 2019, Lufthansa’s total profit dropped 44% to €1.20 billion, from the earlier year’s €2.20 billion. The adjusted EBIT for fiscal 2019 was €2 billion. Additionally, the adjusted EBIT margin was 5.6%, a decline from 8% in FY 2018. The company blamed the drop in EBIT margin to a €600 million rise in fuel expenses and a significant economic slowdown, particularly in domestic markets. Unit costs revised for currency and fuel impact declined 1.5% in FY19, the fourth consecutive year.

Commenting on the impact of coronavirus, Carsten Spohr, Chairman of the Executive Board, said, “The spread of the coronavirus has placed the entire global economy and our company as well in an unprecedented state of emergency. At present, no one can foresee the consequences… The longer this crisis lasts, the more likely it is that the future of aviation cannot be guaranteed without state aid.”

To face the coronavirus issue, the company intends to implement elaborate savings arrangements, including cutting back of capacities, short-term modality of action in domestic markets, and temporary termination of dividends. Lufthansa is also canceling flights in several routes due to prohibitions in several nations and a sharp decline in demand. Roughly 700 of the Lufthansa Group’s 763 airplanes will be temporarily grounded.

The Lufthansa Executive Board has also opted to renounce 20% of its basic salary package this year. Ulrik Svensson, Chief Financial Officer, clarified that the company is financially competent to manage unexpected scenarios like the COVID-19 issue.

Additionally, the company stated that it is suspending long-distance flights from Munich and will only operate long-distance flights from Frankfurt. Lufthansa noted that airlines are currently operating roughly 140 exclusive relief flights. In the meantime, Lufthansa Cargo continues to operate all its flights barring the ones to mainland China.

The weak FY 2019 results and coronavirus issue is expected to keep the stock range-bound with a bearish bias.

The historical price chart indicates that the stock is making a dead cat bounce pattern. The next resistance is anticipated only near 14. Furthermore, the stochastic oscillator is in the oversold region. Therefore, we are expecting the stock to move up in the short-term.

luf - technical analysis - 20th March 2020

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Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world

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