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

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  • Unscheduled pre-lim 2Q results (to June) at EBIT of €686m (down from €1.1b last year but in-line with consensus). It's flagging falling yields (see US airlines demonstrating similar weakness in pricing yesterday) particularly in Asia. Positively unit costs held flat. Adj. FCF was €573m but tends to benefit from Q2 WC seasonality.
  • It says "increasing difficult for Lufthansa Airlines to breakeven for the FY" (referencing the flagship carrier in the group) . Its revising group FY EBIT guidance down to €1.4-1.8b (from prev. €2.2b and vs. consensus at €2b) but notes high beta to peak 4Q and volatile Cargo.
  • Adj. FCF guidance now expected "significantly below €1b" down from the previous "at least €1b" in a blow to credit/BS. This is not only on EBIT revision down but also "uncertainties around capex development". Consensus was looking for €1b.

We have been warning on tightness in airlines heading into earnings and we were/are most worried for AFFP (NR/BB+/BBB-) in 2 weeks. For those that still wanted IG Airline exposure (we have no cheap views) we flagged IAG 27s - its since completely traded away that discount to Lufthansa in a 20bp compression move. We expect more pressure on Lufty on today's release.
Presser here.

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