Lufthansa to discontinue Germanwings in sweeping restructuring

FRANKFURT (Reuters) – Lufthansa (LHAG.DE) said it will close down its Germanwings low-cost airline as part of a broader overhaul which includes cutting capacity across the group, warning it could take years for the industry to recover from the coronavirus crisis.

Global airlines said on Tuesday that 25 million jobs across the world could be at risk from the coronavirus travel downturn and the industry’s representative body IATA said airline finances were so fragile they could not afford to refund customers.

To slash costs Lufthansa will cut capacity at its hubs in Frankfurt and Munich, including reducing the number of aircraft in service for Lufthansa and Eurowings, it said.

“Germanwings flight operations will be discontinued. All options resulting from this are to be discussed with the respective unions,” the company said, confirming what two sources familiar with the matter previously told Reuters.

In addition, six Lufthansa Airbus (AIR.PA) A380s and seven A340-600s as well as five Boeing (BA.N) 747-400s will be permanently decommissioned and 11 Airbus A320s will be withdrawn from short-haul operations, it said.

The airline said its executive board did not expect the aviation industry to quickly return to its pre-coronavirus status, adding it would take years for demand to return to pre-crisis levels.

Lufthansa Cityline will withdraw three Airbus A340-300 aircraft from service and Eurowings will cut back its long-haul business. “All options resulting from this are to be discussed with the respective unions,” Lufthansa said.

DELAYING DELIVERIES

Restructuring programs already initiated at Austrian Airlines and Brussels Airlines will be intensified and both companies are working on reducing their fleets.

SWISS International Air Lines will also adjust its fleet size by delaying deliveries of new short-haul aircraft and consider early phase-outs of older aircraft, Lufthansa said.

Lufthansa’s overhaul is the latest shakeout in an industry ripe for consolidation.

Whereas four airlines control 80% of the U.S. market, Europe has remained fragmented, with the budget segment already in trouble before the coronavirus struck and Lufthansa’s rivals Germania and Air Berlin put out of business.

Cutting back low-margin Germanwings may help its parent survive at a time when even large rivals like Air France-KLM (AIRF.PA) are in talks to receive billions of euros in government guaranteed loans.

Lufthansa has idled more than 90% of its fleet since the virus outbreak and has already held talks with the German government on providing liquidity, including through special loans from state development bank KfW.

Lufthansa is working on a package to raise money from the debt and equity markets, two sources familiar with the matter said. Lufthansa declined comment on its financial steps.

The plan, which has yet to be finalised, could include a combination of convertible bonds, the sale of new shares and a rights issue, where existing shareholders buy additional shares in a company at a discount, the sources said, adding it could happen within the next two weeks.