Lufthansa to Slash Fleet, Shutter Germanwings in Virus Response

(Bloomberg) -- Deutsche Lufthansa AG is scaling back its fleet and closing the Germanwings discount arm to resize the airline group for depressed levels of travel that could last for years after the coronavirus crisis passes.

The German flag-carrier will reduce capacity at its hubs in Frankfurt and Munich, retiring 18 wide-body aircraft including six Airbus SE A380 double-deckers that were scheduled for sale. It will also take 11 A320 single-aisle jets out of service.

Local low-cost unit Germanwings will be discontinued, the company said. At its Eurowings sibling, long-haul offerings will be slashed and an added 10 A320s will be phased out.

“It will take months until the global travel restrictions are completely lifted and years until the worldwide demand for air travel returns to pre-crisis levels,” Lufthansa said.

All told, the reductions exceed 40 planes, including three Airbus A340 aircraft being decommissioned at regional long-haul carrier Lufthansa Cityline. Fleet cutbacks are also coming at the German carrier’s Austrian Airlines and Brussels Airlines subsidiaries. Lufthansa, one of Europe’s biggest airline groups, has a sprawling operation with about 700 planes going into the coronavirus crisis.

Like carriers worldwide, Lufthansa is fighting to maintain liquidity amid a sudden stop in revenue. The company is in talks with the governments of Germany, Austria and Switzerland, where it also owns an airline, for state aid. It is under increasing pressure to accept partial ownership by Germany as a component of state support.

“They are the first major airline to tell the truth about the demand outlook,” Daniel Roeska, analyst at Bernstein, said in reaction to the restructuring. “This is bold and decisive action.”

The measures are the latest tilt by management at stanching the cash outflow. The group said in a separate statement Tuesday it would apply to put 12,000 staff from its Lufthansa Technik aircraft maintenance unit on a German wage-support plan until Aug. 31, adding to 87,000 airline workers already on the Kurzabeit program.

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Lufthansa is also fighting to get customers to accept vouchers for canceled flights, rather than pay cash refunds, a major balance sheet liability.

Lufthansa had about 5.1 billion euros ($5.5 billion) in liquidity, according to a Credit Suisse analysis last month, a sum that would barely cover liabilities if cash refunds on presold tickets were taken into account.

In addition to refund commitments, Lufthansa has expenses of around 1 billion euros per month, meaning it will need a sizable injection to weather the storm, according to the Credit Suisse analysis.

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