Lufthansa working on capital raise plan to combat coronavirus pandemic: sources

[LONDON] Germany's Lufthansa is working on a package to raise money from the debt and equity markets to help see it through the coronavirus pandemic that has caused the collapse of passenger flights, two sources familiar with the matter said.

The plan, which has yet to be finalised, could include a combination of convertible bonds, the sale of new shares and a rights issue, where existing shareholders buy additional shares in a company at a discount, the sources said, adding that it could happen within the next two weeks.

Lufthansa declined to comment.

Lufthansa has idled more than 90 per cent of its fleet since the virus outbreak and has already held talks with the German government on providing liquidity, including through special loans from state development bank KfW.

While details of what the state support will include have yet to be decided, the airline is also being advised by investment banks to unveil a capital raise plan, the sources said.

Lufthansa is "now showing that it can create its own liquidity", one of the sources said.

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The group said in March that its liquidity stood at around 4.3 billion euros (S$6.65 billion) and further funds were being raised, including debt on its unencumbered aircraft.

"It is currently in the structuring process... It will be a sizeable deal because you have to show investors that it is not just covering for the next few months but also enough to keep the company afloat if the virus disruptions last through the year," the second source said.

Airlines have been most hit by the Covid-19 crisis, as demand plunged, forcing them to ground planes, put staff on unpaid leave and scramble to raise cash to ensure their survival.

Singapore Airlines in March secured up to US$13 billion of funding, underwritten by its majority shareholder, state-fund Temasek Holdings.

Sources told Reuters earlier this month that Air France-KLM was in talks with banks to receive up to six billion euros (S$9.27 billion) in loans guaranteed by the French and Dutch governments.

The International Air Transport Association (Iata) has forecast the industry will need up to US$200 billion of state support, piling pressure on governments facing demands from all quarters and a rapid worsening in public finances as economies slump.

Even with financial assistance, airlines around the world are placing thousands of workers on unpaid leave, deepening the shocks to local economies.

A fragmented approach of governments to the aid they are prepared to give airlines is making it difficult for the companies and their advisers to work on packages to raise capital, one of the sources said.

REUTERS