Lufthansa Upsets Shareholders

German national carrier Deutsche Lufthansa AG on Tuesday reported its first full-year net loss in eight years and said that it will not pay a dividend to shareholders for 2001.

Lufthansa reported a record pretax loss of €754 million ($658 million) for last year as a result of the slump in air travel following the September 11 attacks. In 2000, the group still booked a pretax profit of €1.2 billion.

Between 1993, when it paid out €0.20, and 2000, Lufthansa had given its shareholders an unbroken streak of dividend increases. With a payout of €0.60 in 2000, its dividend/price ratio had been one of the best in Frankfurt's Dax-30 blue-chip index.

The markets were wrong-footed by the news of the dividend omission on Tuesday and let Lufthansa shares tumble 7 percent intraday. They closed with little improvement, down 6.45 percent at €18.42.

The company also surprised the markets by announcing that Wolfgang Mayrhuber will succeed Jürgen Weber as chief executive when Weber leaves the company in 2003. Mayrhuber, currently board member with responsibility for passenger travel, will become deputy chief executive from April 1.

But the change in leadership is not expected to lead to a change in strategy at the carrier. Weber, who has been a dominant figure at Lufthansa for many years, is widely regarded to be Mayrhuber's mentor. Weber decided to make the announcement to bring to an end speculation about his successor.

Investors and analysts described the dividend omission as a "bad omen" but said that from the point of view of Lufthansa it had been the right decision to take. "It will help to bring about a rapid improvement in its finance structure," said Matthias Jörss, analyst at Sal. Oppenheim.

In fact, Lufthansa was one of the very few European airlines that closed 2001 with an operating profit, albeit one of a modest €20 million. In response to the drop in bookings, the airline took aircraft out of operation, cancelled routes, and negotiated savings measures with the trade unions, which helped to prevent redundancies.

Sales rose 10 percent to €16.7 billion, boosted by the acquisition of the remaining shares in U.S. catering firm Sky Chefs. Adjusted for the takeover, sales matched the previous year's level of €15.2 billion.

The group booked a net loss of €591 million, after a €689 million profit in the previous year. It was mainly catering subsidiary LSG Sky Chefs that weighed on the result with write-downs and risk provisions.

Chief Executive Weber will be glad to close the book on 2001. He had to revise down his forecasts not once but twice last year.

Aviation was the industry hit the hardest by the economic fall-out from the September 11 attacks. Passenger numbers on Lufthansa's North Atlantic routes fell by as much as 40 percent at one point.