At Last, the Crane Sticks Its Neck Out

Lufthansa AG is expecting to post operating profit of 400 million euros for full-year 2002, Chief Executive Jürgen Weber said on Wednesday in a departure from his practice on previous occasions this year of declining to provide any concrete full-year guidance.

Weber had justified his former reticence on this issue by pointing to the uncertain global situation and the ongoing crisis in aviation. And his statements on Wednesday, which he made in an address to 4,000 shareholders at the airline's annual general meeting, suggest that he has far from abandoned the path of caution. He said that whether the group performed in line with the new forecast would " depend on continued recovery of demand for air transport services." And he added that a further precondition was ";that there should be no renewed geopolitical events that might counteract the current upturn".

Provided that these conditions held, Weber said Lufthansa would be expecting to resume dividend payment this year. Last year, shareholders went empty-handed after the company posted a record pretax loss of 754 million euros.

The airline's catering unit LSG Sky Chefs, largely responsible for the company's record loss last year of 754 million euros, continues to weigh down results. Weber announced a special program aimed at securing a reasonable result for the unit – a sign that shareholders' criticisms of the way the group management had allowed the unit to "slide out of its control"; had not gone unheard. Weber said new investments by the unit would be scrutinized from an "exttremely restrictive" perspective.

Lufthansa bought Onex Food Services, LSG Sky Chef's parent, in June 2001 for 1.2 billion euros. That deal took the group's gearing levels above 4 billion euros. And this area of business saw its value decline particularly dramatically following the September 11 terrorist attacks.

Lufthansa had to make special write-downs on the investment. Lufthansa had planned to float LSG Sky Chef's shares on the stock market in 2003 in a bid to reduce the liabilities arising from the unit, but that plan has had to be postponed sine die.

Still, Weber said Lufthansa had set the scaling back of its debt load as one of its key tasks for the next few years. From 2003 onwards, it's planned for the gearing level to be reduced by at least 300 million euros annually.

And despite the problems with the catering unit, Lufthansa believes itself to be better positioned for the future than many of its major competitors. It said though passenger numbers in its core business are still below year-ago levels, the gap is growing ever smaller. And its seat-load factor has now returned to a fairly healthy 74%.

In general, the cut-rate competition has been growing into a major problem for the established airlines such as Lufthansa. But Weber said this isn't much of a worry for his company. "The no-frills busienss has not taken on a dramatic dimension," he stressed. And it's not likely to make dramatic inroads into Lufhansa's business, since internal German flights accunt for just 10% of group sales revenue, and the group sees the long-haul business as the area that offers the greatest long-term growth opportunities.

In fact, Lufthansa is about to start flying between Munich and Shanghai. "Because we want to strengthen our worldwide network, we are making this kind of connection a priority when it comes to investments," said Weber.

Lufthansa's profit forecast fell within the range of expectations, and its shares closed up 1.07% at 14.20 euros.