Recovery Expectations Pared Back as Lufthansa Prepares for an Equity Raise

No-moat Deutsche Lufthansa’s first-quarter 2021 results included expectations for a slower recovery in traffic than previously anticipated and proposed measures for a capital restructuring. The group reported an adjusted EBIT loss of EUR 1.1 billion, a slight improvement compared with a EUR 1.2 billion loss for the same period last year, driven by record EBIT for the group’s logistics business of EUR 314 million. Available seat kilometers, or ASKs, for the quarter were at 21% of 2019 levels, and the group lowered full-year ASK guidance to 40% of 2019 levels, compared with 40% to 50% previously, as recovery expectations are pared back. Available liquidity at end-March 2021 totaled EUR 10.6 billion, of which EUR 4.8 billion was cash and the balance was undrawn state aid facilities. A proposal for the issuance of EUR 5.5 billion in new equity capital will be made at the AGM in May, and the proceeds will be used to avoid utilizing the equity component of state aid, if needed. We will update investors once further details are clarified. We maintain our fair value estimate of EUR 16.00, while reiterating the extreme uncertainty rating due to potential shareholder equity value destruction as a result of the group’s high indebtedness.