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Rating action

Scope Ratings GmbH (Scope) today affirmed the issuer rating of Deutsche Lufthansa AG (Lufthansa) at BBB-. The Outlook was revised to Stable from Positive. Concurrently, Scope has affirmed the ratings for senior unsecured debt at BBB-, subordinated (hybrid) debt at BB and short-term debt at S-2.

The rating action reflects a revision of Scope’s expectations around Lufthansa's financial risk profile, primarily due to a slower-than-anticipated recovery in profitability. This subdued pace is compounded by persistent inflation and geopolitical uncertainties, which continue to constrain operating cash flow generation. As a result, free operating cash flow remains structurally weak, particularly in light of the group’s substantial fleet renewal programme, dampening the pace of further improvement in overall credit metrics and prompting a return to a Stable Outlook.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Business risk profile: BBB- (unchanged). Lufthansa’s competitive position remains underpinned by its well-diversified portfolio and the strengths of individual business segments. While demand continues to be robust, operations are under pressure from several supply-side constraints. In 2024, capacity across the group’s passenger airlines increased to 91% of pre-crisis levels, supporting a solid average load factor of 83%. This indicates a healthy demand environment, particularly in leisure travel. Eurowings, the group’s point-to-point carrier, exceeded pre-pandemic levels, operating at 112% capacity – the highest within the group. Further capacity growth is anticipated in 2025, supported by tight productivity management.

The robust market positions of Lufthansa Cargo and Lufthansa Technik continue to be key factors in Scope’s assessment of Lufthansa’s strong market share and diversification. Lufthansa Cargo, a market leader with a differentiated offering, benefits from sustained airfreight demand, particularly driven by strong Asian e-commerce volumes. A large freighter fleet enables agile responses to shifting demand. Lufthansa Technik holds a leading position in the expanding MRO (maintenance, repair and overhaul) sector, supported by a broad customer base and partnerships with original equipment manufacturers. Continued industry growth and persistent aircraft delivery delays are driving higher demand for maintenance services. Lufthansa Technik is targeting over EUR 10bn in revenue and margin improvement under the Ambition 2030 plan.

The group is continuing its strategic transition towards becoming a global airline group, marked by the acquisition of a 41% stake in ITA Airways. Diversified operations across Swiss, Austrian, Eurowings, Lufthansa Cargo, and Lufthansa Technik have helped mitigate underperformance at Lufthansa mainline, which is still struggling with operational inefficiencies, aging aircraft, strike disruptions, and irregularity costs.

Group profitability declined in 2024, with the adjusted EBIT margin (Lufthansa metric) falling to 4.4% from 7.6% in 2023. Capacity growth is expected to moderate to around 4%, supporting revenue, yield stabilization, and a more resilient operational setup. While demand remains strong across all segments, challenges such as aircraft delivery delays, wage inflation, rising partner fees, and ESG-related costs continue to impact performance. EBIT is projected to recover in 2025, with more significant improvements expected from 2026. These will be driven by fixed-cost degression, fleet modernization, enhanced productivity, and efficiency gains. Lufthansa Airlines is implementing broad-based efficiency measures, including reorganization, cost containment, and the integration of new long-haul aircraft, aimed at closing the remaining productivity gap versus 2019. However, the full impact on EBIT remains uncertain due to inflationary pressures and ongoing investments. With profitability under pressure, Lufthansa must maintain high load factors, enforce strict cost discipline, and drive supply chain efficiencies to protect margins from external headwinds like supply chain constraints, infrastructure limitations, regulatory burdens, and rising taxes. In this low-margin industry, internal efficiencies are crucial for safeguarding earnings and achieving the medium-term EBIT margin target of at least 8%, dependent on the successful execution of performance improvement measures.

Despite a resilient market share and good diversification, Lufthansa’s business risk profile is limited by the risks of cyclical changes to discretionary travel that may result from event risks (such as a pandemic or war) and the fiercely competitive environment.

Financial risk profile: BBB (unchanged). Lufthansa’s credit metrics remained solid overall in 2024. However, its evolving financial profile reflects the contrasting effects of i) a declining operating result and ii) the group’s increasingly ambitious capital expenditure programme.

Leverage, as measured by Scope-adjusted debt/EBITDA*, deteriorated moderately to 1.8x from 1.5x in 2023, primarily driven by the lower EBITDA generation amid cost headwinds and operational challenges. This weakening was also reflected in the funds from operations/debt ratio, which declined to 47% from over 60% in the prior year. Scope expects leverage to settle at around 1.5-2x, with funds from operations/debt at 45%-60% over the medium term.

Debt protection remains strong, with Scope-adjusted EBITDA/interest cover at around 10x, a level that is expected to be maintained going forward. It is underpinned by the group’s continued strong access to more favourable funding conditions, including the expanded use of cost-efficient financing instruments such as JOLCO structures. These developments reflect Lufthansa’s improving credit standing and market access post-pandemic.

However, Cash flow cover remains the weakest aspect of Lufthansa’s financial risk profile and is under mounting pressure due to substantial investments in fleet renewal and capacity expansion. Although sale and leaseback transactions provide some liquidity relief, free operating cash flow/debt fell to 4% in 2024 and is expected to remain below 5% over the medium term. This trend underscores Lufthansa’s growing reliance on external funding to support its investment programme, particularly for new, more fuel-efficient aircraft essential to modernising operations and meeting environmental targets. Such dependence introduces structural vulnerability into the Group’s credit profile, increasing sensitivity to macroeconomic volatility or industry-specific shocks. At the same time, transitioning to a more efficient fleet is critical for controlling long-term costs, reducing fuel price exposure, and complying with tightening regulatory requirements.

To partially offset these pressures, Lufthansa continues to focus on strengthening internal cash generation by improving working capital management, including tighter receivables control and optimised supplier payment terms.

Liquidity: adequate (unchanged). Scope estimates that Lufthansa will maintain a significant level of cash on its balance sheet each year (unrestricted cash at EUR 7.9bn by YE 2024), compensating for weaker free operating cash flow. Coupled with access to EUR 2.5bn in undrawn revolving credit, this will result in internal and external liquidity coverage ratios adequate to sufficiently cover borrowings maturing in 2025 (EUR 2.3bn) and 2026 (EUR 1.7bn).

Supplementary rating drivers: credit-neutral (unchanged). The rating has no adjustments related to financial policy, peer group considerations, parent support, or governance and structure.

Financial policy remains neutral to the rating. Although the fleet renewal plan could be viewed as ambitious, it is a necessary step to support long-term profitability. Management continues to demonstrate a strong commitment to deleveraging and maintaining the investment-grade credit profile.

Scope’s sees labour management, CO2 emissions and indirect sustainability challenges as the main ESG challenges facing the airline industry (credit-negative ESG factors).

One or more key drivers of the credit rating action are considered ESG factors.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that Lufthansa will maintain solid credit metrics, underpinned by continued prudent financial policy and resilient operating performance, despite persistent cost pressures and a normalisation of earnings. While the debt/EBITDA is expected to remain below 2x, free operating cash flow/debt is projected to stay structurally weak at below 5%. This reflects the substantial funding needs tied to the group’s ambitious fleet renewal programme, which, although strategically important for long-term competitiveness and environmental compliance, will weigh on near-term financial flexibility.

The upside scenarios for the ratings and Outlook are (collectively):

1. Debt/EBITDA significantly below 2x on a sustained basis
    
2. Free operating cash flow/debt above 10% on a sustained basis

The downside scenario for the ratings and Outlook is:

1. Debt/EBITDA above 3x on a sustained basis

Debt ratings

Senior unsecured debt has been affirmed at BBB-, in line with the issuer rating.

Outstanding subordinated debt (hybrid) has been affirmed at BB. The two-notch differential to the BBB- issuer rating reflects the structural elements of the subordinated debt, including the very long tenor, deep subordination and coupon deferability.

The affirmed short-term rating of S-2 is based on the BBB-/Stable issuer rating and backed by strong liquidity cover and conservative liquidity management. The rating is further supported by well-established bank relationships and good standing in the capital markets, evidenced by the revolving undrawn credit line.

Environmental, social and governance (ESG) factors

Labour management challenges, such as prolonged union disputes, rising labour costs, and workforce shortages, can negatively impact operational efficiency and profitability, leading to heightened financial strain. Similarly, regulatory pressures to reduce CO2 emissions require substantial investments in fuel-efficient aircraft, alternative fuels, and carbon offset programmes. These capital-intensive transitions may burden airlines with higher debt levels or erode cash flows, impacting their ability to meet financial obligations. Additionally, indirect sustainability challenges, including evolving environmental regulations and climate-related disruptions, introduce long-term uncertainty into revenue projections and cost structures.

All rating actions and rated entities

Deutsche Lufthansa AG

Issuer rating: BBB-/Stable, Outlook change

Short-term debt rating: S-2, affirmation

Senior unsecured debt rating: BBB-, affirmation

Subordinated (hybrid) debt rating: BB, affirmation

*All credit metrics refer to Scope-adjusted figures.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology 
The methodology used for these Credit Ratings and Outlook, (General Corporate Rating Methodology, 14 February 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in 'Rating Definitions – Credit Ratings, Ancillary and Other Services', published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings' definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings and Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed.
Lead analyst: Azza Chammem, Associate Director
Person responsible for approval of the Credit Ratings: Thomas Faeh, Executive Director
The issuer Credit Rating/Outlook, the short term Credit Rating and the senior unsecured debt Credit Rating were first released by Scope Ratings on 4 November 2016. The Credit Ratings/Outlook were last updated on 23 May 2024.
The subordinated (hybrid) Credit Rating/Outlook was first released by Scope Ratings on 6 June 2018. The Credit Rating/Outlook was last updated on 23 May 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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