Assets and financial position
5.3.1 Balance sheet structure and ratios
The balance sheet structure at 31 December 2007 is characterised by an expansion in the group of consolidated companies. This has signifi cant effects throughout, which are refl ected in changes to individual balance sheet items and in the indicators derived from them. In the following, these effects are, therefore, given in brackets.
The consolidated balance sheet total at the end of 2007 was EUR 2.9bn higher (EUR 1.7bn come from changes in the group of consolidated companies) than the comparable fi gure for 2006 at EUR 22.3bn. Noncurrent assets rose by EUR 1.1bn (EUR 558m due to changes in the group of consolidated companies) to EUR 14.1bn, and current assets even increased by
EUR 1.8bn (EUR 1.1bn from consolidation changes) to EUR 8.2bn.
Among the non-current assets, the items aircraft and reserve engines alone went up by EUR 975m (EUR 888m from consolidation changes) to EUR 8.4bn and intangible assets by EUR 288m (of which EUR 322m from consolidation changes) to EUR 1.0bn. Financial assets declined by EUR 528m, due to the derecognition of the share in SWISS, which had previously
been accounted for using the equity method and shown here.
Among the current assets, liquidity went up sharply, rising by EUR 1.1bn to EUR 3.6bn, including securities disposable at short notice (EUR 885m from consolidation changes). Current receivables and other financial assets also increased by EUR 547m. The disposal of the stake in Thomas Cook, which was previously accounted for using the equity method, had the opposite effect as it had been shown as current assets at year-end 2006 (EUR 372m). The proportion of noncurrent assets in the balance sheet total declined from 66.6 per cent at year-end 2006 to 63.1 per cent now.
Among equity and liabilities, shareholders' equity (including minority interests) rose by EUR 2.0bn compared to year-end 2006 and is now EUR 6.9bn. The increase mostly comes from the high profi t after taxes of EUR 1.7bn, which refl ects the good operating performance
and also includes the net income of EUR 503m from the sale of the Thomas Cook stakes. Consolidated shareholders' equity also went up thanks to the initial consolidation of SWISS as of 1 July 2007, as the corresponding revaluation of all assets and liabilities led to
a total increase of EUR 483m. The dividend payment of EUR 321m to the shareholders of Deutsche Lufthansa AG had the opposite effect and reduced equity accordingly.
The equity ratio rose to 30.9 per cent compared with 25.2 per cent at the end of the previous year. Our aim is a sustainable equity ratio of 30 per cent, which we have reached for the first time this year. The return on equity made further good progress. It has risen constantly for the last five years and is now 25.5 per cent.
While non-current provisions and liabilities sank by EUR 721m to EUR 7.1bn, current provisions and liabilities went up by EUR 1.6bn (EUR 785m from consolidation
changes) to EUR 8.3bn.
The decline in non-current provisions and liabilities is solely due to further funding of pension obligations of EUR 1.6bn in 2007, which reduces the obligation and shortens the balance sheet accordingly. The noncurrent financial liabilities went up in contrast, due to aircraft financing in 2007. Higher current provisions and liabilities are mainly a result of business expansion and the larger group of consolidated companies. The earn-out obligation towards the former shareholders of Swiss International Air Lines is now also recognised as a current liability as the payment is due in March 2008. The fair value of the obligation is currently at CHF 234m, the payment can go up to a maximum of CHF 390m, depending on the share performances of Lufthansa and its competitors.
The non-current proportion of the balance sheet, consisting of shareholders' equity and longterm liabilities, is now 62.9 per cent (previous year: 65.6 per cent). Non-current financing now covers 99.8 per cent of noncurrent assets (previous year: 98.5 per cent).
Gearing, calculated as the ratio of net indebtedness plus pension provisions to equity, is 24.5 per cent (previous year: 75.7 per cent) and is, therefore, below the target corridor of 40 to 60 per cent.
Net indebtedness is the balance of gross financial debt and available financial assets plus non-current securities which can be liquidated at short notice. It is currently negative, net liquidity amounts to EUR 768m (previous year: EUR 101m), of which SWISS accounts for EUR 554m.
5.3.2 Fleet
The Group's fleet is not only by far the largest asset in the balance sheet, but also is a resource which makes a key contribution to value creation. The Lufthansa fleet consists of both Airbus and Boeing planes in addition to various regional aircraft. This structure gives us the greatest flexibility in negotiations for new aircraft, as the Group has the training and technical resources necessary for flight operations for models of both suppliers. The different seating capacities and ranges of the individual models ensure that they can be closely adapted to the demands of various markets.
A modern, well-structured fleet is an important cornerstone for Lufthansa's future competitiveness. This means that a number of factors must be taken into consideration when renewing and expanding the existing fleet. The number and size of aircraft must match expected traffic flows. At the same time, the aircraft must be set up to meet the customers' wishes and to be as economical and environmentally friendly as possible, particularly regarding fuel consumption. The current fl eet order programme takes these aspects
into account and also makes sure that suffi cient capacity is available when needed.
The Airbus A380 is going to be the future backbone of our long-haul fleet for routes with high passenger traffic. In order to fill the gap in capacity caused by delivery delays, five Airbus A330s and seven Airbus A340-600s were ordered at the end of 2006, which will be put into service successively from summer 2008. To provide support for profitable growth at SWISS, its A330 fleet is also to be modernised and extended from 2009 onwards. With the order for the Boeing 747-8 Lufthansa will replace existing aircraft from 2010, and create additional capacities for planned growth in intercontinental traffic in line with the market.
Lufthansa has the route network in Europe. As a result of expanding the intercontinental routes this position also needs to be secured and developed. At the same time, we want to make the network more at tractive for business travellers. This means that the European
and regional fleets are systematically modernised and expanded. The successive delivery of the Airbus A320 sub-fleet ordered started in October 2007. From 2009 onwards, the regional fleet will be modernised with more efficient aircraft.
A key competitive success factor is the ability to adjust capacities to market developments. Lufthansa enjoys this flexibility in several respects. An anticipatory order policy with staggered orders for new aircraft covers our requirements under various growth scenarios. A
high level of standardisation in the cockpit equipment of sub-fleets (e. g. the Airbus A320 family), means that they can be deployed flexibly across the different airlines in the Group. Furthermore, as the Group fleet is largely unencumbered, the growth path can be adjusted by optimising the share of new orders required for replacement and growth at short notice. In our current fleet programme, therefore, we attach great importance to this flexibility to adjust to different growth scenarios. If demand grows as expected, we will successively rejuvenate older sub-fleets with ordered aircraft as planned. If demand is brisker than forecast, however, we have the option of flying existing aircraft for longer. We have also secured options with flexible draw-downs for all sub-fl eets in order to respond to higher demand
at short notice. Equally, if the market should enter a longer downturn, we are in a position to withdraw aircraft from operations by bringing maintenance work forward or putting them out of service earlier. The fleet being mostly owned by the Group and the estimated useful life of twelve years provide this flexibility at only minimal ongoing financial expense.
