Research Update: Deutsche Lufthansa AG Upgraded To 'BB+' On Ongoing Air Traffic Recovery And Lower Financial Leverage; Outlook Positive

We think the recovery in air travel demand will continue this year and that resilient yields will offset inflationary pressures on Deutsche Lufthansa AG's (Lufthansa's) cost base and declining air freight rates in its cargo segment. This should boost S&P Global Ratings-adjusted EBITDA in 2023 to close to €4.5 billion, significantly above our previous base-case projection. These supporting factors should sustain Lufthansa's positive free operating cash flow (FOCF; after leases) and, on the back of the lower pension deficit, lead to S&P Global Ratings-adjusted funds from operations (FFO) to debt of 40%-45% (after 42% in 2022). We therefore raised our long-term issuer credit and issue ratings on Lufthansa and its senior unsecured debt to 'BB+' from 'BB' and our issue

...- We think the recovery in air travel demand will continue this year and that resilient yields will offset inflationary pressures on Deutsche Lufthansa AG's (Lufthansa's) cost base and declining air freight rates in its cargo segment. This should boost S&P Global Ratings-adjusted EBITDA in 2023 to close to 4.5 billion, significantly above our previous base-case projection. - These supporting factors should sustain Lufthansa's positive free operating cash flow (FOCF; after leases) and, on the back of the lower pension deficit, lead to S&P Global Ratings-adjusted funds from operations (FFO) to debt of 40%-45% (after 42% in 2022). - We therefore raised our long-term issuer credit and issue ratings on Lufthansa and its senior unsecured debt to '##+' from '##' and our issue rating on its junior subordinated debt to 'B+' from 'B'. We affirmed the 'B' short-term issuer credit rating on Lufthansa. - The positive outlook reflects at least a one-in-three likelihood that we may raise our ratings on...

Research Update