Lufthansa to jettison JetBlue investment to reduce its debt levels

LUFTHANSA is to shed its stake in JetBlue Airways, ending a shareholding held for more than seven years, to improve its balance sheet.

It was offering holders of its bonds that are convertible into JetBlue shares early redemption, it said yesterday.

The transaction will lower Lufthansa’s debt, supporting the company’s rating. It may also improve its equity ratio, which stood at 15.2% as of September 30, down from 19.1% a year earlier and below the medium-term target of about 25%.

Lufthansa has come under pressure, with rivals in the Persian Gulf taking market share on long-haul routes, while continental traffic is pinched by expanding European low-cost carriers. Lufthansa pilots have staged a series of strikes, causing many flights to be cancelled.

Labour disputes were “a key risk” to European network carriers’ transformation plans, Fitch Ratings said in a report last month, while competitive pressure to reorganise had “greatly increased”. Efforts to change pay and working conditions increased the risk of further walkouts, “weakening financials already stretched”, Fitch said.

The divestiture is occurring as Robin Hayes begins his tenure as JetBlue CEO. The airline’s stock price has doubled in the past 12 months and its net income last year, excluding some items, rose 38% from a year earlier, helped by lower fuel costs.

JetBlue expected to continue its commercial relationship with Lufthansa and this offer would not affect the carrier’s outstanding share count, chief financial officer Mark Powers said.

Lufthansa has a so-called split rating, with Moody’s rating it Ba1, the highest junk-rating level, while Standard & Poor’s rates it BBB-, the lowest investment grade rating.