S&P rating weiter gesenkt von BB+ auf BB ..... weit, weit weg von Investmentgrade! 
The stabilization package is composed of €5.7 billion in silent participation and a €3.0 billion state-guaranteed loan. The package also includes the German government acquiring a 20% stake in Lufthansa's share capital at a share price of €2.56, which is equivalent to a €300 million cash injection. After our review of the relevant legal framework agreement, we now regard the €5.7 billion silent participation as akin to debt, according to our hybrid criteria. This is because we believe that Lufthansa has a material incentive to redeem the silent participation given that the hybrid's documentation includes multiple coupon step-ups up until 2023. Furthermore, based on Lufthansa's public communication, we understand that the airline intends to redeem the hybrid instrument as soon as practicable. Accordingly, we now expect Lufthansa's adjusted debt to rise to as much as €18.0 billion in 2020 compared with €10.8 billion in 2019, which will result in much weaker credit measures than we previously forecast and a highly leveraged financial risk profile versus aggressive previously. In our view, certain benefits of the silent participation differentiates it from traditional debt, which we capture in our credit rating by applying one notch of uplift to the anchor to arrive at Lufthansa's stand-alone credit profile (SACP) of 'bb-'. We note that the silent participation does not have an effective maturity date and includes optionally deferrable coupon features. This provides important flexibility to the airline's capital structure.
We expect a steeper drop in Lufthansa's EBITDA and higher cash flow deficit in 2020 than in our previous base case. This is because of a likely slower rebound in the airline's long-haul passenger traffic, expected sluggish corporate and business travel, and weakened demand for its MRO services. In light of Lufthansa's plan to increase its capacity in July to only about 40% of its original schedule from just 3% in May, we expect a severely constrained summer season, which is typically the strongest in terms of revenue generation. The uncertainty of timing over lifting entry bans and quarantine requirements for countries outside the EU curbs the recovery in the high-margin long-haul passenger segment, especially for the North American destinations. Additionally, we expect the demand for MRO services, which historically contributed to close to 20% of Lufthansa's EBITDA, to remain sluggish given the airline sector's reduced activity globally. Although Lufthansa is taking steps to mitigate the collapse in air travel demand, we now forecast a significantly negative adjusted EBITDA this year. This, aggravated by working capital requirements, which could be material because of, for example, ticket refunds or sluggish bookings, and partly offset by deferral of capital expenditure (capex) for new planes and maintenance, and suspension of dividends, will result in negative free operation cash flow (FOCF) of €7.5 billion-€8.0 billion in 2020.
Lufthansa's depressed financial metrics for 2020 are less meaningful to our assessment of financial risk. That said we factor into our analysis expected financial results for 2020, particularly regarding the capital structure, accumulation of debt, and liquidity. Because we believe that the state aid package will substantially enhance the airline's capacity to navigate through this difficult year, we focus mostly on expected 2021 credit ratios. This approach best reflects the airline's cash flow/leverage profile in our analytical judgment, assuming that air travel starts to recover late in 2020.
The projected recovery of credit metrics in 2021 is limited by Lufthansa's high debt and is susceptible to risks. Although we expect Lufthansa's operating performance to improve in 2021, with adjusted EBITDA rising to €2.5 billion-€3.0 billion, its ratio of funds from operations (FFO) to debt will only recover to be consistent with the higher end of our highly leveraged financial profile category from the negative territory we forecast in 2020, while we expect the airline's FOCF to break even. For these forecasts, we assume passenger traffic will start recovering later this year, and benefits from structural cost-cutting measures and lower jet fuel price will feed through. Nevertheless, low visibility on the evolution of the COVID-19 pandemic and recessionary trends mean our forecasts are subject to significant risks.
We consider Lufthansa a government-related entity. We see a moderate likelihood that Lufthansa would receive extraordinary support from the German government under a stress scenario, beyond the recently approved stabilization package. This translates into one notch of uplift from the airline's SACP of 'bb-'. We base our view on our assessment of Lufthansa's important role for, and limited link with, the German government.
(Quelle: S&P Internetseite)
- Lufthansa's shareholders and the European Commission have approved a €9.0 billion state aid package that we believe will significantly boost Lufthansa's liquidity but result in weaker credit metrics than commensurate with the 'BB+' rating, since we regard most of the state aid package as debt.
- Furthermore, we expect a steeper drop in Lufthansa's EBITDA and a higher cash flow deficit in 2020 because of a likely slower rebound in long-haul passenger traffic, expected sluggish corporate and business travel, and weakened demand for the airline's maintenance, repair, and overhaul (MRO) services.
- We are therefore lowering our ratings on Lufthansa and its senior unsecured debt to 'BB' from 'BB+' and our ratings on the junior subordinated debt to 'B-' from 'B'. The 'B' short-term issue credit rating is unchanged. We removed the ratings from CreditWatch negative, where we placed them on March 20, 2020.
- The negative outlook reflects our view that Lufthansa's financial metrics will remain under considerable pressure in the next few quarters amid the extremely difficult trading environment. Furthermore, there is still high uncertainty regarding the COVID-19 pandemic and economic recession, and their adverse impact on air traffic demand and Lufthansa's financial position and liquidity.
The stabilization package is composed of €5.7 billion in silent participation and a €3.0 billion state-guaranteed loan. The package also includes the German government acquiring a 20% stake in Lufthansa's share capital at a share price of €2.56, which is equivalent to a €300 million cash injection. After our review of the relevant legal framework agreement, we now regard the €5.7 billion silent participation as akin to debt, according to our hybrid criteria. This is because we believe that Lufthansa has a material incentive to redeem the silent participation given that the hybrid's documentation includes multiple coupon step-ups up until 2023. Furthermore, based on Lufthansa's public communication, we understand that the airline intends to redeem the hybrid instrument as soon as practicable. Accordingly, we now expect Lufthansa's adjusted debt to rise to as much as €18.0 billion in 2020 compared with €10.8 billion in 2019, which will result in much weaker credit measures than we previously forecast and a highly leveraged financial risk profile versus aggressive previously. In our view, certain benefits of the silent participation differentiates it from traditional debt, which we capture in our credit rating by applying one notch of uplift to the anchor to arrive at Lufthansa's stand-alone credit profile (SACP) of 'bb-'. We note that the silent participation does not have an effective maturity date and includes optionally deferrable coupon features. This provides important flexibility to the airline's capital structure.
We expect a steeper drop in Lufthansa's EBITDA and higher cash flow deficit in 2020 than in our previous base case. This is because of a likely slower rebound in the airline's long-haul passenger traffic, expected sluggish corporate and business travel, and weakened demand for its MRO services. In light of Lufthansa's plan to increase its capacity in July to only about 40% of its original schedule from just 3% in May, we expect a severely constrained summer season, which is typically the strongest in terms of revenue generation. The uncertainty of timing over lifting entry bans and quarantine requirements for countries outside the EU curbs the recovery in the high-margin long-haul passenger segment, especially for the North American destinations. Additionally, we expect the demand for MRO services, which historically contributed to close to 20% of Lufthansa's EBITDA, to remain sluggish given the airline sector's reduced activity globally. Although Lufthansa is taking steps to mitigate the collapse in air travel demand, we now forecast a significantly negative adjusted EBITDA this year. This, aggravated by working capital requirements, which could be material because of, for example, ticket refunds or sluggish bookings, and partly offset by deferral of capital expenditure (capex) for new planes and maintenance, and suspension of dividends, will result in negative free operation cash flow (FOCF) of €7.5 billion-€8.0 billion in 2020.
Lufthansa's depressed financial metrics for 2020 are less meaningful to our assessment of financial risk. That said we factor into our analysis expected financial results for 2020, particularly regarding the capital structure, accumulation of debt, and liquidity. Because we believe that the state aid package will substantially enhance the airline's capacity to navigate through this difficult year, we focus mostly on expected 2021 credit ratios. This approach best reflects the airline's cash flow/leverage profile in our analytical judgment, assuming that air travel starts to recover late in 2020.
The projected recovery of credit metrics in 2021 is limited by Lufthansa's high debt and is susceptible to risks. Although we expect Lufthansa's operating performance to improve in 2021, with adjusted EBITDA rising to €2.5 billion-€3.0 billion, its ratio of funds from operations (FFO) to debt will only recover to be consistent with the higher end of our highly leveraged financial profile category from the negative territory we forecast in 2020, while we expect the airline's FOCF to break even. For these forecasts, we assume passenger traffic will start recovering later this year, and benefits from structural cost-cutting measures and lower jet fuel price will feed through. Nevertheless, low visibility on the evolution of the COVID-19 pandemic and recessionary trends mean our forecasts are subject to significant risks.
We consider Lufthansa a government-related entity. We see a moderate likelihood that Lufthansa would receive extraordinary support from the German government under a stress scenario, beyond the recently approved stabilization package. This translates into one notch of uplift from the airline's SACP of 'bb-'. We base our view on our assessment of Lufthansa's important role for, and limited link with, the German government.
(Quelle: S&P Internetseite)
