Lufthansa May Forgo Dividend on Low Interest Rates, Analysts Say

Deutsche Lufthansa AG, Europe’s second-largest airline, may choose to scrap its dividend for 2014, analysts predict, amid charges from selling a business and mounting pension payments.

At least five analysts expect the company to forgo a payout for 2014, with Damian Brewer of RBC Capital today joining Barclays’s Oliver Sleath, Equinet Bank’s Jochen Rothenbacher, Kepler Cheuvreux’s Ruxandra Haradau-Doeser and Goodbody Stockbrokers’ Jack Diskin in predicting a dividend omission.

Lufthansa is locked in a conflict with pilots over retirement benefits that led to a series of strikes last year, while competition from low-cost carriers and Gulf rivals is depressing fares. In addition, pension obligations are rising as interest rates continue to decline, eroding equity from the company’s balance sheet.

Scrapping the payout “would preserve cash and equity, and it would be a signal from shareholders to the pilots to also contribute, possibly paving the way for a solution of the conflict later this year,” Rothenbacher said.

Pension obligations and the disposal of a unit will weigh on profit calculated under German accounting rules, hurting Lufthansa’s ability to pay a dividend. Lufthansa said in October that the sale of an infrastructure division to International Business Machines Corp. will lead to costs of about 240 million euros, while declining interest rates will create a burden of a “low three digit million euro amount.”

The consensus estimate for Lufthansa’s 2014 dividend payout stands at 37 cents, based on 25 contributions compiled by Bloomberg. Lufthansa paid no dividend for 2012 and for 2009. Helmut Tolksdorf, a spokesman for the carrier, said the company plans to present its suggestion for a payout at its annual general meeting on March 12.

The company’s equity ratio at the end of September dropped to 15.2 percent, while Lufthansa targets the measure to be about 25 percent “in the medium term.” The ratio stood at 29.2 percent at the end of 2012, and at 21 percent at the end of 2013.

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