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Lufthansa Announces Mega Deal with Boeing and Airbus, Amid Restructuring

Lufthansa Announces Mega Deal with Boeing and Airbus, Amid Restructuring
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The German flag carrier Lufthansa (OTC: DLAKY) announced on Thursday an order of 59 long-haul, long-range aircrafts to Boeing (NYSE: BA) and Airbus, for a total of approximately €14 billion ($19 billion) to the list price.

The company also said it has reserved options to increase the order by 60 aircrafts, 30 from each manufacturer.

The order, approved Wednesday by the supervisory board of the company, comprises 34 Boeing 777-9X and 25 Airbus A350-900 which will be delivered till 2016, the company said in a statement.

Gradually, the previous models Boeing 747-400 and Airbus A340-300 will be removed from air traffic by 2025 before they become obsolete. The modernization of its fleet will help the company to cut fuel consumption, reducing unit costs by about 20 percent compared to the use of older aircraft models, and keep track of its major Middle East rivals, which are very active on routes between Europe and Asia.

However, Lufthansa's decision is justified by a number of parameters referring to hard data in regard to competitiveness in the industry, including efficiency in operations and adherence to upcoming stricter regulation, along with some other aspects of political and social nature, as the company is a symbol of an aspiring business culture to the German people.

“The goal is to reduce the number of different models and the complexity of the fleet in the ‘passenger' division, as well as to replace active fleet with modern aircrafts,” the company says.

In addition, group's president, Christoph Franz stresses that “with the investment, Lufthansa will be able to save around 13,000 jobs within the company and tens of thousands more in aviation partners and suppliers.”

Each of these new aircraft will “safeguard” 220 direct jobs, the statement said, adding that in addition to this number, a hundred more per plane in related activities at airports such as traffic control, manufacturing, freight forwarders and “partner” network will be secured. In total, the order of 59 planes would affect positively 20,000 jobs “in Germany and Europe,” estimates the company.

Nonetheless, Lufthansa made clear that the value of the order “can be revised downwards,” since manufacturers “often make discounts on large orders,” particularly for long-haul aircrafts.

This is the first order announced officially regarding the 777-9X, the new flagship aircraft from Boeing.

However, back in March 2013 Lufthansa has confirmed an order for 100 short-range aircraft to Airbus, which indicates that the final decisions as regards the renewal of the company's fleet are yet to be finalized.

Indeed, as Lufthansa spokesman Thomas Jachnow told Bloomberg, the decision for the final formation of the carrier's fleet is to be taken by the supervisory board of the company.

Furthermore, as the conclusion of a major deal can be leveraged and monetized in the credit market by the companies involved in the negotiations and can be used as a tool to secure short-term liquidity from the banking system, it remains to be seen how the final agreement would be shaped in due course.

Moreover, the announcement of Lufthansa coincides with a report earlier on Sunday that the CEO of the company is negotiating his departure from the position, to become president of the Swiss drug maker Roche, according to a newspaper in Switzerland.

According to an article on Neue Zuercher Zeitung, Christoph Franz, Lufthansa's current CEO, is the favorite to take the post of Roche Chairman Franz Humer when retiring.

Franz would be discussing the details of his departure with the airline once the board of the pharmaceutical meets later this month to appoint a replacement for Humer.

Lufthansa and Roche declined to comment.

Franz has run the company since 2011. Under his administration, Lufthansa has undergone a major restructuring aimed at long-term profitability, which allowed the company “to renew its fleet without raising much debt,” underlines Dow Jones Newswires.

Posted-In: News Global Trading Ideas Best of Benzinga


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