Lufthansa Chief Sees No Risk to Debt Rating from Strike, Ash Cloud

Deutsche Lufthansa AG Chief Executive Officer Wolfgang Mayrhuber said he sees no risk that Standard & Poor’s will cut its investment-grade rating even after losses from the volcanic ash cloud and a pilot strike.

An upswing in cargo traffic and growing demand on intercontinental and business flights will bolster the company’s financial situation and back the BBB- rating, the lowest investment grade, Mayrhuber said in an interview.

“While we had a split rating at the worst time of Lehman, why should it be downgraded now?” Mayrhuber told Bloomberg Television before the annual meeting of the International Air Transport Association, which begins today. “It should rather go the other way round. I don’t see any risks here.”

Moody’s Investors Service cut the Cologne-based carrier’s debt rating to junk in September last year, citing declining profitability at its passenger and cargo units.

Lufthansa, Europe’s second-largest airline after Air France-KLM Group, aims to lift operating profit above last year’s levels even as it attempts to restructure unprofitable Austrian Airlines and BMI units.

Volcanic ash over Europe in April cost carriers worldwide $1.7 billion as they were force to idle planes.

Lufthansa will focus on raising yield rather than increasing its market share by offering more capacity to respond to the recovery in passenger numbers, Mayrhuber said.

Yield First

“Of course, we want to have yield back,” he said. “We don’t want to fall short of market development. We have the opportunity to put more airplanes, but we’re not growing the number of flights or the number of planes.”

Lufthansa may further increase prices for its cargo services this year, Carsten Spohr, head of the cargo division, said at a press briefing today in Berlin.

A strike by the Vereinigung Cockpit pilot union in February halted hundreds of flights. Lufthansa began mediated negotiations with the union on wages and job conditions after the pilots called off a second strike planned for mid-April.

Lufthansa fell 4.5 cents, or 0.4 percent, to 10.76 euros at 12:31 p.m. in Frankfurt trading. The stock is down 8.5 percent this year, giving the carrier a market value of 4.9 billion euros ($5.9 billion).

To contact the reporter on this story: Cornelius Rahn in Berlin via crahn2@bloomberg.net; Philipp Encz in Berlin via philippencz@bloomberg.net

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