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Lufthansa: Impressive Cash And Liquidity Management

Mar. 10, 2021 9:00 AM ETDeutsche Lufthansa AG (DLAKF)1 Comment

Summary

  • Lufthansa has significantly reduced operating cash drain.
  • The company has a strong liquidity position that allows it to successfully access capital markets.
  • Recovery in demand should further drive down cash usage while opportunities to refinance debt at attractive terms exist.
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In a previous report, I had a look at the fleet plans of the Lufthansa Group (OTCQX:DLAKF). What I pointed out is that the fleet plan that was presented in the management discussion and presentation does make a lot of sense, but the actual fleet plan as communicated in the annual report looks a bit different possibly due to the “firmness” of the plans.

MMGY Global & Lufthansa Airlines | MMGY

Source: Lufthansa

What I have not discussed yet is Lufthansa’s liquidity position, and while the pace of recovery has been slowing down I do believe that Lufthansa is in a relatively good position.

Focus on the sequential improvement

Figure 1: Cashflow profile 2020 (Source: Lufthansa Group)

When we look at the full year cash burn, it can easily be seen that it was a horrible year with refunds heavily pressuring the adjusted free cash flow partially offset by net new bookings and significantly lower capital expenditures. Lufthansa ended 2019 with €1.4B in cash and cash equivalents and €3.4B in liquidity. That really shows big the pressure on Lufthansa has been in 2020, because if you compare the cash flow it can easily be seen that the company would not be able to fund operations with its cash position or liquidity, but that's also not something that we should expect from a current crisis. It merely should serve as a reference of how extremely big this crisis is for airlines.

Figure 2: Monthly cash drain Lufthansa in 2020 (Source: AeroAnalysis)

It's absolutely no surprise that Lufthansa faced a multi-billion cash outflow that it wouldn’t have been able to absorb without raising debt or equity. More interesting, however, is the effort to reduce the cash outflow and I believe that those efforts have been fruitful so far. When COVID-19 started to quickly spread, Lufthansa had a COVID-19 related cash burn of €800 million and

 

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This article was written by

Dhierin Bechai profile picture
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Dhierin-Perkash Bechai is an aerospace, defense and airline analyst.

Dhierin runs the investing group The Aerospace Forum, whose goal is to discover investment opportunities in the aerospace, defense and airline industry. With a background in aerospace engineering, he provides analysis of a complex industry with significant growth prospects, and offers context to developments as they occur, describing how they might affect investment theses. His investing ideas are driven by data informed analysis. The investing group also provides direct access to data analytics monitors. Learn more.

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Comments (1)

C
Once again, I don't know where to start...
To avoid insolvency, LH secured more credit than was estimated - cargo flights also saved cash reserves.
The savings were essentially made in personnel. Re-recruiting them and getting operations back up and running will be expensive.
LH has given up the added value of service.
In the future, tickets will not be paid for at the time of booking but only at boarding. This will leave a gap.
I assume that ticket prices will initially be very favorable and yet will not fill the planes to capacity.
Value airlines could probably satisfy the projected 50% passenger numbers on their own. Domestic or short-haul flights will become very limited in the EU in the medium term (2022/2023).
The relatively high oil price and the CO2 levy is also not positive.
However, liabilities can ultimately only be repaid from profits - and that will take time.
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