Airlines

Germany's Lufthansa signs record jet deal with Boeing, Airbus

Balint Porneczi | Bloomberg via Getty Images

German airline Deutsche Lufthansa announced its largest-ever aircraft order on Thursday, worth 14 billion euros ($19.0 billion). The purchase of 34 Boeing and 25 Airbus jets will also be the biggest single order in Germany industrial history.

The new airplanes will primarily serve to replace existing aircraft at Lufthansa, with Boeing 777-9Xs and Airbus A350-900s replacing the older Boeing 747-400s and Airbus A340-300s.

Lufthansa said it hoped the purchase of newer, more fuel-efficient planes will help cut costs, at a time when the airline is pursuing ongoing restructuring plans as the industry struggles with overcapacity in Europe. Lufthansa forecast the new aircraft would deliver a 20 percent decrease in unit costs and a 25 percent fall in fuel consumption.

"No other aircraft type will fly as economically as the A350-900 and the Boeing 777-9X in terms of kerosene consumption per passenger and 100 kilometres flown," Lufthansa CEO Christoph Franz said at a news conference in Frankfurt on Thursday, in his first public appearance since he announced he was quitting next year to become chairman of Swiss pharmaceutical giant Roche.

"Less fuel consumption, less carbon dioxide emissions and less noise: the aircraft on order will enable us to make a quantum leap in efficiency and to enter the 2-liter class," Franz added.

Following a bid for 22 Airbus A320 jets in March, Lufthansa now has a total of 295 aircraft on order, with a list value of 36 billion euros. It also has options to purchase another 60 planes.

Michel Merluzeau, managing partner of research firm G2 Solutions, described the deal as a "very well-balanced and lower-risk acquisition exercise".

"Lufthansa has always demonstrated a very sound and well-timed fleet growth strategy," he said.

Robin Byde, an analyst at Cantor Fitzgerald, said the recent deal was proof the airline had strong access to capital — unlike some of its European peers.

"Their earnings and cash generation are more stable than their close peers — partly because of the diversity of the business — so they are able to structure these deals," he told CNBC, adding that in 2012, over 50 percent of the airline's profit came from Lufthansa Technik, its aircraft maintenance arm.

Byde said the purchase of the Boeing aircraft would likely be funded via a double ETC (exchange-traded certificate), a type of senior unsecured debt security issued by an underwriting bank.

"There are many ways to finance these purchases — outright ownership, basic leases… Lufthansa is self-financed more than its close peers because of stronger cash generation," he said.

Like Deutsche Bank and Credit Suisse, Byde rated the airline's stock a "buy," noting that it had underperformed the German Dax index by around 17 percent over the last three months.

After the announcement, Lufthansa stock traded around 1.4 percent higher on Thursday, before paring back.

Neal Dihora, an equity analyst at Morningstar, said stock in Boeing and Airbus-parent company EADS would also benefit from the news.

"In general, more orders are positive, for sure, as it helps visibility. At the current moment, the two companies — Boeing and Airbus — have nearly 10,000 aircraft yet to be delivered… The increasing visibility allows the two manufacturers the ability to leverage positions on suppliers," he said.

On Tuesday afternoon, Boeing shares traded 0.9 percent higher and EADS shares closed 1.7 percent higher.


By CNBC's Katy Barnato