(Rewrites and add details on Moody's downgrade.)
Moody's Thursday downgraded Deutsche Lufthansa AG's (LHA.XE)
credit rating to junk status as the German carrier finalized its
acquisition of struggling Austrian Airlines AG (AUA.VI) and said it
would pursue further cost cuts.
Following the closure of the Austrian Airlines deal, Moody's cut
Lufthansa's credit rating to Ba1, saying that the company's metrics
are under pressure from the deal and "very weak market
conditions."
A week ago, Standard & Poor's Ratings Services cut
Lufthansa's rating to the brink of junk.
Moody's, however, said it expected Lufthansa to improve the
Austrian carrier's performance in the long term and noted the
German airline's strong liquidity continued to support its
rating.
The ratings agency said that stronger metrics were likely in
2010 if industry conditions improved, but in the near-term this
wouldn't be enough to bring Lufthansa up to an investment-grade
rating.
Chief Executive Wolfgang Mayrhuber told reporters in Vienna
Lufthansa would pursue further cost cuts in its own operations and
within its new acquisition as it anticipated continued tough times
for the aviation industry.
Mayrhuber raised the possibility of further job cuts, saying
"only profitable jobs are safe jobs."
He didn't expect a marked improvement in revenue or demand for
flights in the near future, adding: "In the near and mid term, we
will have to make do with the level we have now."
Mayrhuber expected the highly indebted and loss-making Austrian
carrier to have positive cash flow in 2010, but actual
profitability could take longer as it would also depend on
unpredictable factors such as fuel-price swings and flight
demand.
Lufthansa won the tender for the Austrian state's 41.6% stake in
Lufthansa last year and declared it would offer EUR4.49 for each
outstanding share in a public offer for the free float. The
European Commission approved the deal on the condition Austrian
Airlines shed some flight capacity.
Lufthansa said earlier Thursday it now has more than 90% of the
share capital.
Without detailing the intended squeeze-out offer, Mayrhuber said
the remaining shareholders will be offered less than the EUR4.49 a
share paid to shareholders who took the initial offer.
Mayrhuber said Austrian Airlines, with its strong focus on
Eastern European destinations, offers a good product in terms of
service and route network, but it "has a cost problem" which needs
dealing with.
Austrian Air is its Eastern European medium- and short-haul
routes were a major attraction for Lufthansa.
Lufthansa also intends to keep Austrian Air's long-haul route
network largely intact, Mayrhuber said.
He said Lufthansa's buying spree of the past year, according to
the current plans, ended with the purchase of Austrian
Airlines.
At 1500 GMT, Lufthansa's shares traded up 1.3% at EUR10.77,
while the Frankfurt DAX index traded down 0.4%.
Company Web sites: www.lufthansa-financials.com;
www.austrian.com
-By Flemming E. Hansen and Erin Fines, Dow Jones Newswires; +43
1 513 69 22 10; flemming.hansen@dowjones.com
