Lufthansa freezes investments amid gloomy outlook

FRANKFURT Thu Nov 24, 2011 8:33am EST

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FRANKFURT Nov 24 (Reuters) - Deutsche Lufthansa AG has decided to freeze all non-essential investment for the next six months due to the weak global economic environment, a spokeswoman for Germany's biggest airline said.

"But investments essential for the business and fleet investments are unaffected by this move," she said on Thursday, adding she could not say what volume of planned spending was being put on ice.

Lufthansa currently has 202 aircraft worth 19 billion euros ($25.37 billion) at list prices on order for delivery through 2018. Like peers, it is banking on newer, more fuel-efficient planes to help it keep costs under control.

Soaring fuel costs and the euro zone debt crisis have taken a toll on European airlines this year, with Lufthansa cutting its 2011 outlook two months ago and industry body IATA forecasting a weak end to the year for the sector.

"That is why we have to act now to prevent a further reduction of our financial flexibility, significantly higher financing costs and a possible loss of our investment grade rating," Lufthansa Chief Executive Christoph Franz told workers at a meeting on Monday, according to an employee newsletter obtained by Reuters on Thursday.

Lufthansa has an investment grade credit rating of BBB- at Standard & Poor's, but is one notch below investment grade, at Ba1, at Moody's.

Lufthansa's cargo arm last week said it was putting on hold plans to invest about 1 billion euros in Frankfurt, citing the night-flight ban at Germany's busiest airport.

"It's not to say we won't invest but we need a final decision on the ban from the court in Leipzig," Lufthansa Cargo board member Andreas Otto had said on Monday evening.

"With freighters, it's already difficult to make a satisfying margin." ($1=0.7490 euros) (Reporting by Maria Sheahan and Victoria Bryan; Editing by David Cowell)

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