Lufthansa (LH, Frankfurt International) launched an offering of senior unsecured convertible bonds on November 10 for EUR525 million euros (USD618 million) due in November 2025, before raising it to EUR600 million (USD706 million) later in the day due to high demand and altering the conditions in its favour.
The bonds, which have a denomination of EUR100,000 (USD118,000) each, have a coupon rate that Lufthansa lowered from between 2.25% and 2.75% per annum to between 2% and 2.25%, payable semi-annually in arrears. The transaction, it said, was more than six times oversubscribed.
“The company thereby further strengthens its liquidity,” it declared in the statement announcing the bonds, adding that it plans to use the proceeds for general corporate purposes.
The bonds will be convertible into new or existing shares. Lufthansa also adjusted the initial conversion price, from between 30% and 35% above the reference share price to 40%.
The company claimed it still had EUR10.1 billion (USD11.9 billion) in cash at its disposal as of September 30, including the stabilisation measures that have been put in place in Germany, Switzerland, Austria, and Belgium which have not yet been utilised.
“The transaction proves that Lufthansa still has access to attractive financing despite the corona pandemic and highlights the trust in Lufthansa as a borrower and the group’s good international reputation,” said Wilken Bormann, the company’s executive vice president for finance.
The following day, on November 11, Lufthansa announced it had reached further “crisis-management measures” by cutting a deal with Germany’s second-largest trade union, ver.di. The agreement will reduce costs by a further EUR200 million (USD236 million), in return for making no compulsory redundancies in 2021.
In addition to ongoing “short-time work” - for which German employers receive funds from the Federal Employment Agency (Bundesagentur für Arbeit) - Lufthansa’s 24,000 ground staff agreed to forgo their usual Christmas and holiday bonuses for 2020 and 2021. The company will also cut the amount it pays to top up government payments to staff working short-time.
The measures will cut personnel costs by up to half in 2021, depending on the total hours worked. In return, Lufthansa pledged it would not make forced layoffs during 2021 but will resume talks on long-term reductions in labour costs from January 1, 2022. Union members still have to vote on the deal.
The airline and its subsidiaries Austrian Airlines, Brussels Airlines, Eurowings, and Swiss already plan to cut 22,000 full-time jobs.
Local media reported that there is growing pressure on Spohr from the federal government and from major shareholder Heinz Hermann Thiele to cut costs more quickly and decisively in view of poor occupancy figures and billions in losses. Otherwise, the company may need additional financial injections next year that would further damage its future competitiveness through high interest rates.
Lufthansa posted a loss of nearly EUR2 billion (USD2.36 billion) for the third quarter of 2020.
Meanwhile, Lufthansa continues to work on its new leisure subsidiary Ocean (Frankfurt International). It will operate under its own Air Operator’s Certificate (AOC) by the end of 2021 and its fleet may consist of around eight medium-haul aircraft as well as its planned long-haul fleet, CEO Carsten Spohr said during a press conference. He declined to give further details, stressing that a final decision had not been made, but added that they could be taken from the fleet of Eurowings Europe (Austria) (Vienna).
Eurowings Europe currently operates an all-owned fleet of nine A319-100s and ten A320-200s, according to the ch-aviation fleets module.
