German airline Lufthansa has boosted its cash reserves by €1 billion (US$1.18 billion) after a successful bond issue. It is the second time this year Lufthansa has gone to the markets to raise cash. As of March 31, Lufthansa had approximately €10.6 billion in cash and cash equivalents at hand.
Demand for bonds high reflecting strong confidence in Lufthansa
The most recent bonds were placed in two tranches. The first €500 million was raised via a series of €100,000 three-year bonds with an annual interest rate of 2.0%. Lufthansa raised the second €500 million via eight-year bonds with an interest rate of 3.5%.
Demand was high for the bonds, reflecting investor confidence in Lufthansa’s future. Demand for both tranches was almost double what was available. Citi, Credit Suisse, HSBC, and ING managed the deal.
A bond is a fixed instrument loan. The lender, usually but not always a financial institution, receives a fixed interest rate and repayment rate. Typically, companies, municipalities, states, and governments raise money via bonds. Air France-KLM, easyJet, IAG, and Ryanair have all raised money using bonds this year.
“The repeated successful placement of a corporate bond again confirms our access to a variety of advantageous financing instruments,” says Remco Steenbergen, Chief Financial Officer of Deutsche Lufthansa AG.
Money used to strengthen Lufthansa’s liquidity position
Lufthansa has already secured the refinancing of all financial liabilities due in 2021. The airline says the fresh funding will further strengthen the Lufthansa Group’s liquidity.
In 2020, Lufthansa received a €9 billion bailout from state lender KfW, of which around €2.5 billion has been used. The bond issue earlier this year went towards paying down €1 billion of this bailout. Last month, the airline indicated it would like to repay the outstanding balance by the September 2021 German federal election.
“We were one of the first companies that the federal government saved. We also want to be one of the first to repay our aid package – hopefully before the federal election,” said CEO Carsten Spohr.
Lufthansa says it is eyeing raising more cash to do this. In addition to repaying bailout money, Lufthansa wants to restore a sustainable and efficient long-term capital structure. Lufthansa says it is yet to decide on the size and timing of a possible future capital increase.
“We can obtain financing on the capital market at more favorable terms compared with the stabilization measures. We are continuing to work systematically on our restructuring measures to repay the government stabilization measures as quickly as possible,” said Remco Steenbergen on Wednesday.
Some light on the horizon for Lufthansa
After a tough 15 months, there is some light on the horizon at the Frankfurt-based airline. Low COVID rates mean Lufthansa is seeing more business passengers in Germany and across Europe. It’s not a full rebound, but the trend is in the right direction.
“For four weeks, we have been registering increased demand for business flights for September, October, and November. That is a clear signal… We are currently experiencing a comeback in business travel. In Germany and Europe in particular, business demand for air travel is clearly on the rise again.” Lufthansa Director, Harry Hohmeister said.
With the United States also beginning to get a handle on COVID, Lufthansa is ambitiously eyeing a full transatlantic comeback over the next couple of months. As business slowly shows signs of normalizing at Lufthansa, the airline becomes more confident about its capacity to manage debt and further capital raisings on the horizon.
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