Lufthansa can be 'snobbish' with funding decisions

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Lufthansa is sticking with attractive pricing available in the Japanese financing market as the German carrier focuses on maintaining a balanced funding mix.

“We will continue to raise funding through the Japanese operating leasing (JOL) market as we are in a situation where we can be snobbish and pick the best priced financing,” said Markus Ohlert, head of leasing at Lufthansa, speaking at the Ascend Finance Forum in London today. “I don't see Lufthansa reaching the limits of this market and being forced to switch to other financings anytime soon.”

Banking sources say Lufthansa recently closed JOL funding for inside Libor plus 100 basis points on a narrowbody aircraft – a level of pricing that is considered extremely favourable even in today’s highly competitive financing markets that have resulted in lower pricing levels.

Ohlert says Lufthansa’s aim is to further strengthen its existing investment grade rating, and to maintain minimum liquidity of €2.3 billion ($3.1 billion) at all times.

The carrier plans on issuing more unsecured debt, “as the rating agencies have suggested”, says Ohlert. “We want a balance between secured and unsecured funding.”

Lufthansa has closed JOLs on various Airbus A380 and Boeing 747-8 aircraft deliveries, in particular, during the past two years. However, earlier this year Lufthansa used its cash position to fund an A380 (MSN 146) and a 747-8 (37838) , which delivered on 1 April and 31 March, respectively.

The carrier said, at the time, it could end up financing the longhaul aircraft at a later date.

In addition, Lufthansa is also aiming for an equity ratio of 25% in the medium term, by retaining profits and continuing the successive funding of pension obligations.

A total of 261 aircraft will be delivered to Lufthansa by 2025.