Lufthansa steps up cuts to fleet and staff as outlook dims

By Caroline Copley

BERLIN (Reuters) - Lufthansa announced further cuts to its fleet and workforce on Monday along with a 1.1 billion euro ($1.3 billion) impairment on idled aircraft as Europe's worsening coronavirus situation spread gloom across the airline sector.

The German airline group, hit hard by its reliance on Asian and other long-haul routes as well as stalled business travel, said it now expects to operate at only 20-30% of capacity in the fourth quarter.

"The outlook for international air traffic has significantly worsened in recent weeks," it said.

Lufthansa now plans to reduce its fleet by 150 aircraft - 50 more than previously planned - and cut more jobs than the 22,000 full-time equivalent positions already identified as surplus.

The beginnings of a summer rebound proved short-lived in Europe, as resurgent COVID-19 infection rates in Spain, France and elsewhere prompted new travel curbs and quarantines, which have been criticised by airlines as a disproportionate travel deterrent.

The replacement of quarantines with pre-flight virus tests is "an essential prerequisite" to a recovery, Lufthansa said.

Its shares were down 9.5 percent at 7.79 euros at 1605 GMT, the second-biggest decline in a sharply lower European sector in which British Airways owner IAG's shares slid by 12%.

Lufthansa, which also owns Austrian Airlines and Eurowings, said it would transfer its eight remaining Airbus A380 superjumbos and 10 A340 jets to long-term storage.

Aircraft valuation specialist IBA predicted on Monday that more than 1,000 aircraft could be returned to lessors next year and Airbus (NYSE: AIR) CEO Guillaume Faury last week warned staff that compulsory layoffs are likely.

Lufthansa, which had previously hoped to limit compulsory redundancies by reducing pay and hours, on Monday said it would now talk to unions about deeper cuts as it aims to reduce monthly cash burn to 400 million euros from 500 million.

"It's clear to everyone that Lufthansa can't go on without cuts," said Mira Neumaier, a spokeswoman for the Verdi union, adding that "job cuts alone will not save the company".

By early 2021 management positions will be cut by 20% and administrative office space in Germany by 30%, Lufthansa said.

Air France-KLM , shares in which fell 7.6%, said on Monday that it was discussing a previously flagged capital increase with the French and Dutch governments after loading up with 10.4 billion euros in state-backed crisis debt.

($1 = 0.8518 euros)

(Additional reporting by Ilona Wissenbach; Writing by Laurence Frost; Editing by Edward Taylor, Alexander Smith and David Goodman)

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