Lufthansa plans job cuts, other restructuring to repay bailout

Bloomberg

Deutsche Lufthansa AG signalled it would make sweeping job cuts and sell off non-core units in order to repay a $10 billion coronavirus bailout from the German government.
Europe’s biggest airline will slash employee expenses and look at spinning off non-core units to reduce costs and bolster cash flow as the coronavirus crisis depresses revenue, it said in a statement on Wednesday. The group had a 2.1 billion-euro net loss in the first quarter.
“In view of the very slow recovery in demand, we must now take far-reaching restructuring measures to counteract this,” Chief Executive Officer Carsten Spohr said in the release.
The pledge to slash costs is likely to lead to a struggle with Germany’s powerful labour unions which in the years prior to the pandemic thwarted efforts to trim expenses with pilot and cabin-crew strikes. While other European carriers are also cutting back, Lufthansa’s situation may be complicated by the state’s pending 20% holding in the airline, which will see government representatives involving themselves in its affairs.
Lufthansa wouldn’t be the first German company to run up against labor resistance as it tries to pare costs. Industrial conglomerate Thyssenkrupp AG — once a symbol for German engineering prowess — is selling off or closing entire divisions after years of failed attempts to put the business on a sustainable footing. If Spohr’s cost-cutting drive falls short, he won’t be able to pay down debt and dislodge the state as a shareholder.
“The scale of the restructuring is immense, and agreement with unions on drastic reductions in staff numbers, wages or both will be difficult to achieve,” said Daniel Roeska, an analyst with Sanford C Bernstein.
Spohr’s bid to sell non-core units won’t be easy either, judging by Lufthansa’s past spin-off attempts. A push to divest its LSG Sky Chefs catering arm met with repeated delays before an agreement was reached to sell the European division to Gate Group Holding AG. Lufthansa earlier this year abandoned an auction process for the international unit.
The airline group has looked at a partial listing of its Lufthansa Technik aircraft maintenance and refit business, people familiar with the matter said previously. While a listing of the unit would give Lufthansa funds to pay down debt, unshackling the division could take years and would deprive the airline group of a reliable income stream. The company set out more precise cuts for its foreign airline units, where labour-protection laws are less stringent than in Germany. Austrian Airlines will see staff costs pared by 20%, with Brussels Airlines suffering a 25% reduction in the workforce and a 30% cut to its fleet.
While Lufthansa has said its liquidity position is becoming “urgent,” the statement gave no details on cash levels.