Deutsche Lufthansa AG

The stable outlook reflects our view that Lufthansa will be able to maintain adjusted FFO to debt of more than 30% in the next 12-24 months. This is based on our expectation of continued solid EBITDA generation thanks to consistent passenger traffic growth, timely capacity adjustments and nonfuel cost savings, and the financial turnaround of Eurowings. These will counterbalance the burden from lower yields and higher fuel expenses, in our view. Accordingly, we consider that the company will realize a sustained benefit from ongoing strategic and efficiency initiatives, while gradually reducing its unit cost and thereby protecting its profitability and business profile. We would lower the rating if Lufthansa's earnings weakened, such that the ratio of adjusted FFO to debt

...EBITDA in 2019 will be lower than 2018 mainly due to significant ticket price pressures in the European market. Deutsche Lufthansa AG's (Lufthansa) earnings in 2019 will be lower than 2018 because the nonfuel cost savings, solid transatlantic long-haul operations, and stronger contribution from MRO business segment did not fully offset the burden from a higher fuel bill and sluggish yields on European short-haul routes due to overcapacities. We estimate Lufthansa will achieve S&P Global Ratings-adjusted EBITDA of 4.6 billion-4.8 billion in 2019, compared with about 5.5 billion in 2018. We add about 300 million for an operating lease adjustment to arrive at our adjusted EBITDA. We estimate credit metrics stayed in line with the ratings in 2019, despite multiple headwinds. We anticipated that Lufthansa might not be always able to achieve the strong EBITDA it posted in 2018 because of its exposure to cyclical supply-and-demand conditions, volatile fuel prices, and likely further network disruptions....

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