Lufthansa increases capital by 2.1 billion euros to repay German stabilisation package

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The global rollout of vaccinations supports customers’ confidence to fly and facilitates the further lifting of travel restrictions. Lufthansa is well positioned to take advantage of the resulting rebound in global travel demand.

Based on the Group’s operating performance in July and August, Adjusted EBIT (excluding restructuring expenses) in the third quarter is expected to be positive. Capacity offered by the Group’s airlines has returned to more than half of pre-crisis levels, with load factors exceeding 70% in August. Current bookings indicate a sustained demand recovery.

Similar to July and August, the Group expects passenger numbers to reach around half of 2019 levels over the coming months, supported by the noticeable recovery of corporate travel. At the same time, cargo trends continue to be uniquely strong, supported by sustained capacity shortages and high demand.

Lufthansa Group’s structural transformation is progressing faster than anticipated, with measures currently implemented already accounting for more than half of the EUR 3.5 billion targeted cost savings. The Group, therefore, expects to reach an Adjusted EBIT margin of at least 8% by 2024.

Lufthansa Group forecasts to generate Adjusted free cash flow of around EUR 2 billion per annum in 2023 and 2024 while continuing to modernise its fleet. The Group expects to take delivery of up to around 30 new aircraft per annum going forward with more than half of future fleet additions being leased. This will contribute to capital expenditures remaining in line with D&A levels, corresponding to around EUR 2.5 billion per annum in 2023 and 2024.

Since the beginning of the Covid-19 pandemic, Lufthansa Group has taken decisive action to strengthen its liquidity and restore its balance sheet. Today, the Group is launching a EUR 2.1 billion capital increase to establish a sustainable and efficient capital structure and to enable the Group to repay the Economic Stabilisation Fund of the Federal Republic of Germany (ESF)). The transaction is fully underwritten by a syndicate of 14 banks. In addition, a number of funds and accounts under the management of BlackRock, Inc. have entered into a sub-underwriting agreement for a total of EUR 300 million and have committed to fully exercise their subscription rights.

The capital increase is meant to strengthen the Group’s equity position. The Company will use the net proceeds to repay the Silent Participation I of the Economic Stabilisation Fund of the Federal Republic of Germany (ESF) in the amount of EUR 1.5 billion. Additionally, the Company intends to fully repay the Silent Participation II in the amount of EUR 1 billion by the end of 2021 and also intends to cancel the undrawn amounts of the Silent Participation I by the end of 2021.

Upon termination of the Silent Participations, Lufthansa Group will initiate the process to cancel the remaining Authorized Capital C.

The Group’s net debt position is expected to improve materially post the capital increase, setting a path towards achieving the Group’s target leverage ratio of < 3.5x (net debt plus pension provisions / EBITDA) and an investment-grade rating in the medium term. Based on the Group’s balance sheet as of June 30, 2021, pro forma liquidity will be within the target corridor of between EUR 6 billion and EUR 8 billion when taking into account the repayment of Silent Participations I and II.

Carsten Spohr, CEO of Deutsche Lufthansa AG, says: “The stabilisation package agreed with the ESF has enabled Lufthansa to protect the jobs of more than 100,000 employees. We have always made it clear that we will only retain the stabilisation package for as long as it is necessary. We are therefore proud that we can now deliver on our promise and repay the measures faster than originally expected. We can now fully focus on the further transformation of the Lufthansa Group.”

Remco Steenbergen, CFO of Deutsche Lufthansa AG, says: “We are confident that this capital increase will facilitate the delivery of our mid-term balance sheet targets, supported by our strong Adjusted free cash flow generation and precipitate value-accretive capital returns going forward. We also remain committed to further explore portfolio measures when full value can be achieved to maximize the value and strategic flexibility of the Group.”

The ESF, which currently holds 15.94% of the Company’s share capital, has undertaken to start divesting its equity interest in the Company no earlier than six months after completion of the capital increase, if the ESF subscribes to the capital increase. In this event, the divestment shall be completed no later than 24 months after completion of the capital increase, provided that the Company repays the Silent Participation I and the Silent Participation II as intended.

Overview of the Capital Increase

The Company expects gross proceeds of EUR 2,140 million from the capital increase. The subscription price of EUR 3.58 per New Share corresponds to a discount of 39.3% to the TERP (theoretical ex-rights price).

The subscription ratio is 1:1. Accordingly, for each existing share of the Company, one new share may be subscribed at the subscription price. The new shares are to be offered to shareholders during the subscription period, which is expected to commence on September 22, 2021, and end on October 5, 2021. The rights trading is expected to commence on September 22, 2021, and end on September 30, 2021. Admission of the New Shares to trading on the regulated market segment (regulierter Markt) of the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) with simultaneous admission to the sub-segment thereof with additional post-admission obligations (Prime Standard) is expected on October 7, 2021, with trading to commence on October 11, 2021.

After the offering, the Company will have 1,195,485,644 shares outstanding (currently: 597,742,822). The New Shares will carry the same voting and economic rights as the ordinary shares of the Company currently in circulation.

The Capital Increase is fully underwritten by BofA Securities, Deutsche Bank Aktiengesellschaft, Goldman Sachs Europe SE and JP Morgan AG which are acting as Global Coordinators and Joint Bookrunners and Barclays Bank Ireland PLC, BNP Paribas SA, Commerzbank Aktiengesellschaft, Credit Agricole Corporate and Investment Bank SA, DZ Bank AG Deutsche Zentral-Genossenschaftsbank, HSBC Trinkaus & Burkhardt AG, Landesbank Baden-Württemberg, SMBC Nikko Capital Markets Europe GmbH, Société Générale SA and UniCredit Bank AG acting as additional Joint Bookrunners.

Use of Proceeds

The net proceeds from the Capital Increase will be used to strengthen the Group’s equity base and to repay the Silent Participation I.

Executive Board Members’ Intentions

Each Executive Board member has committed to participate in the capital increase and to fully exercise all subscription rights received in relation to their shares.

Prospectus

The public offer of the New Shares in Germany is made exclusively through and on the basis of a securities prospectus approved by the German Federal Financial Supervisory Authority (BaFin), which will be made available, among others, on the website of the Lufthansa Group (https://www.lufthansagroup.com/capital-increase). The approval is expected to be granted on September 20, 2021. There will be no public offering outside Germany and the prospectus will not otherwise be approved by any other regulatory body.