Lufthansa Scraps Payout Amid $12 Billion Jet-Order Plans

(Corrects fleet composition in 13th paragraph.)

Deutsche Lufthansa AG plans to suspend its dividend for the first time since 2010 to preserve cash as the German airline rejuvenates the fleet and pushes ahead with its most ambitious cost-savings program to date.

Lufthansa will buy eight long-range and 100 short- to medium-range aircraft in a purchase valued at about 9 billion euros ($12 billion), the carrier said in a statement yesterday. Lufthansa also plans to close sites, including its headquarters in Cologne, and merge administrative functions as part of a savings program targeted at increasing operating profit to 2.3 billion euros by 2015. The stock fell the most in 5 1/2 weeks.

“In order to successfully meet the changes in the aviation industry, we need to perform even better,” Chief Executive Officer Christoph Franz said in the statement. “Only then can we create the necessary scope for the measures we need to take to shape the future of the Lufthansa Group ourselves.”

Europe’s second-biggest airline began reorganizing almost a year ago to improve margins, eliminating 3,500 administrative jobs and expanding its Germanwings low-cost brand. That’s a strategy also pursued by International Consolidated Airlines Group SA and Air France-KLM Group as the legacy carriers feel the squeeze from low-cost rivals and the ascent of Middle East carriers expanding their global networks.

Stock Drops

Lufthansa dropped as much as 5.8 percent to 15.07 euros, the steepest intraday decline since Nov. 1, and tradeda t 15.08 euros as of 4:30 p.m.. That pared the stock’s gain this year to 5.9 percent, valuing the carrier at 6.96 billion euros.

Net income last year was 990 million euros, compared with a year-earlier loss of 13 million euros, mainly because of gains from disposals, Lufthansa said in its preliminary report of earnings. Revenue rose 4.9 percent to 30.1 billion euros. Lufthansa is scheduled to report complete earnings on March 14.

“The main focus in the dividend,” Stephen Furlong, a Dublin-based analyst for J&E Davy Holdings, said by telephone. “Management is very focused to get their restructuring plans through, and they don’t want to send the message that things are all great.”

Predicting Cut

The company paid a dividend of 25 cents a share for 2011. Lufthansa was expected to eliminate its payout for last year, according to Bloomberg analytics.

Lufthansa said on Nov. 14 it reduced its stake in Amadeus IT Holding SA, a Spanish operator of airline bookings systems, for a gain of 307 million euros.

Photographer: Michele Tantussi/Bloomberg

Deutsche Lufthansa AG Chief Executive Officer Christoph Franz said, “In order to successfully meet the changes in the aviation industry, we need to perform even better.” Close

Deutsche Lufthansa AG Chief Executive Officer Christoph Franz said, “In order to... Read More

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Photographer: Michele Tantussi/Bloomberg

Deutsche Lufthansa AG Chief Executive Officer Christoph Franz said, “In order to successfully meet the changes in the aviation industry, we need to perform even better.”

The company said the aircraft order will be a blend of Airbus SAS and Boeing Co. planes. It didn’t disclose the models being considered. Lufthansa now has a mixed fleet, including the Airbus A380 double-decker and the latest Boeing 747-8 jumbo jet. The order will extend from 2015 to 2025 and requires supervisory board backing.

Lufthansa mainly flies Airbus A320 and Boeing’s 737 planes on short and medium routes. On long-haul service, its models include A340-300 and 747-400, several of which are more than 20 years old, according to planespotters.net. The company has been evaluating an order for the A350 and 787 Dreamliners, and will decide this year about a possible purchase of the mid-range jets.

Owning Aircraft

The airline had 635 planes in its group as of Sept. 30, only 65 of which were leased. That means Lufthansa owns 90 percent of its fleet, an anomaly in the industry that has come to rely more on leasing in past years. The average age of its fleet in 2011 was 11.2 years, according to its annual report.

Spokesman Thomas Jachnow said two of the company’s oldest Boeing 747-400 long-haul planes were taken out of service last year, and among the oldest models remaining are some A340-300s.

The shutdown of the Cologne headquarters, where Lufthansa has about 365 employees, will be completed by the end of 2017, the carrier said. Closing that site and other locations will be discussed with labor representatives as the airline targets personnel cost savings of 500 million euros. Lufthansa is also evaluating shifting the headquarters of its CityLine unit to Munich from Cologne, a move that may affect 300 employees.

“Short decision-making channels and fewer interfaces will make Lufthansa’s passenger business leaner, faster and more flexible,” said management board member Carsten Spohr.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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