Lufthansa taps BCG to support its business rescue strategy

Consultants from Boston Consulting Group are helping German aviation giant Lufthansa oversee a self-imposed administration procedure. The move comes shortly after the German Government purchased a 20% stake in the company, freeing up €9 billion to help secure the ailing airline’s immediate future.

The Covid-19 lock-down has greatly exacerbated the steady decline witnessed by the aviation industry in the last three years. Coronavirus was cited by UK airline Flybe as a factor in its collapse earlier in the year, while Virgin Australia also pointed to the pandemic as it appointed Deloitte for its voluntary administration.

A number of airlines also recently announced they would cutting their consulting spend to help them survive the crisis – as they look to reduce all non-essential spending while their respective fleets are grounded. Back in February, one of the earliest firms to do this was German airline Lufthansa, the core brand of which sought to reduce its project volume by 10% and its budget for material costs by 20%.

Despite these efforts, the group claims it continues to lose €1 million per hour – placing it in something of a nosedive. In order to save the company from collapse, Lufthansa attempted to further reduce spending via its use of a ‘protective shield’ manoeuvre. The procedure is a variant of a self-administered insolvency procedure, and saw Lufthansa’s management team bring in law firm SGP Schneider Geiwitz as lead restructuring consultant, alongside experts from consultancy Boston Consulting Group (BCG).

The advisors are supporting Lufthansa with its preparations for article 270b of the German Insolvency Code, and with an overall business rescue plan spanning strategy, resizing and restructuring. Last week, Lufthansa announced plans to cut a quarter of its workforce at subsidiary Brussels Airlines, or around 1,000 jobs.

Some experts see Lufthansa's flirt with a protective shield procedure as a simple negotiation tactic on the part of its leaders, as the firm goes cap in hand to the Government for a wide-reaching bailout package.

Even if a broader restructuring process were to yield large savings, 700 of Lufthansa’s fleet of 760 planes have been grounded amid the coronavirus lock-down. With the number of passengers falling by 99%, it is still going to have to depend on a loan from the federal government – something its leadership team may worry will give Germany's politicians massive influence over the operation of the German national carrier.

Indeed, more than 20 years after Lufthansa was privatised, the State has reportedly agreed to return and purchase a 20% stake in the firm – releasing capital of €9 billion to help the company avoid bankruptcy.

Earlier in April, Lufthansa said the conditions of the bailout are likely to include “the waiver of future dividend payments and restrictions on management remuneration,” but it remains to be seen whether its demonstration of being ‘responsible’ by making cuts ahead of time will mean other, more stringent conditions, would also be part of the deal.