DAVY VIEW

Post restructuring, with a liquidity buffer and important strategic position, the Lufthansa Group will remain a global leader. However, with net debt and pension liabilities nearing €20bn, the pathway to investment grade (net debt incl. pensions <3.5x) will be long and will require: (i) significant free cash generation, which has been patchy in the past; (ii) a likely capital raise in the next 12 months; and (iii) perhaps a partial sale or listing of Lufthansa Technik. The assumption that business travel will be 10-20% smaller in the medium term will be important as it represents 45% of revenues. We continue to rate the shares ‘Underperform’ (price target €7.0) until some of the above, particularly (i) and (ii), are realised.