Lufthansa (LHAGR; Baa3/BBB-/BBB-) Pre-lim 2Q results & FY Guidance cut follow up

LHA is unch to +7 wider, IAG -1-3 tighter, AFFP and Finnair unch in HY.

• Lufthansa was net/gross 1.8/3.6x levered at the end of March and was the first of the local network carriers to be reinstated back into IG in December last year. We don't expect HY rating pressure to emerge on these results but it doesn't change our view on lack of value in the curve.
• Though above numbers may not look bad vs. consensus, worth remembering consensus has been on a one-way move lower on the back of company guidance cuts. In march FY guidance was for EBIT of ~€2.7b and FCF of >€1.5b....4-months in co has nearly cut that in half.
• Positive is costs looks to be finally flatlining, negative is yields, which at the time of upgrade raters were bullish on (from limited capacity) looks weak. Moody's in Jan when it upgraded it into IG added "high yields that we expect to persist through 2024".
• Only other updates we have had since it moved to IG is the regulatory approval for the €325m/41% ITA stake (raters saw as positive on limited integration risk and eventual synergies, equity analyst more mixed) and the EU probe into state aid (fully repaid so we see impact limited on current financials on any negative rulings).
• Lufthansa's MT EBIT target of 8% looks firmly out of range this year and will leave it well behind IAG's double digit margins. Unclear who will be left at the bottom: Lufty, Air-France and Finnair are all contenders.