Earnings Call: Q3 2020

Nov 5, 2020

Good morning, ladies and gentlemen, and welcome to our conference call today. Let me briefly outline the format of today's call, which we have set up as a joint call for analysts and investors again. Our CEO, Carsten Spohr, will present you our Q3 results and our outlook for the remainder of the year. I would also like to introduce Wilkin Bormann, Senior Vice President, Group Finance, who will participate in the Q and A session later on. The presentation slides, which Carsten Spohr will refer to, are available in the Investor Relations section of our lufthandargroup.com website. The management presentation will be followed by 2 separate Q and A sessions, one for our analysts in English language and the second one for journalists in German language. And we ask all participants to stick to this order. Thank you very much. I'd now like to hand over to Carsten Spohr. Please go ahead. Yes. Thank you, Dennis. And ladies and gentlemen, welcome also from my side of the table to this conference call. First of all, I hope that in this crazy times, you and your families are well and healthy because it's obvious the corona pandemic continues to have a significant impact on all of us, but surely on the Lufthansa Group, which is what we are discussing here today. The worldwide number of COVID-nineteen infections has been rising again dramatically for several weeks now, especially in our home markets here in Europe and it goes on. Just earlier this week, a month long lockdown has come into force in Germany as well as in Austria. Other European countries are also increasing their corona measures, and important long haul markets such as the U. S. Seem not to open up anytime soon. This will make the winter months, which are challenging for our industry in general, even harder. However, we are confident that the Lufthansa Group will master the coming months in a way that will further even strengthen our leading position in the industry. And I will explain the reasons for this in detail today. First, we limited our operating loss and cash flow, or cash outflow in Q3 through a very disciplined cost and cash management. Secondly, our logistic business, Lufthansa Cargo goes from unknown strength to strength. 3rd, for the Q4 of 2020, we will continue our very disciplined capacity management, only operating flights which contribute cash to the Group. 4th, our strong and proven hub strategy shows its advantages in this crisis, because demand on low levels is bundled by hubs while many direct point to point services disappear. And last but not least, number 5, overall our solid liquidity position equips the group for tough winter season ahead. When we presented our half year results in early August, we were confident that our business would gradually recover in the second half of the year. And indeed, performance in July early August was even better than we initially expected. Good leisure demand led to load factors in European short haul of almost 70% in July and more than 65% in August. This was significantly above the levels in long haul. Since then, however, the recovery has stalled. Leisure travel has come to an end due to new limitations. New infections started rising, causing travel restrictions to increase further and further, and our corporate customers have not yet returned. In light of this market backdrop, the decline of load factors at the Network Airlines does not come as a surprise. Nonetheless, we still ensured that virtually all flights we operated in the Q3 covered their cost. This includes positive contribution from cargo load in the bellies. The strength of cargo meant that we operated with passenger breakeven load factors of sometimes 0, at least on some of our long haul routes. And yields increased as a result of the higher share of short haul in the traffic mix and because of the higher relative share of short notice bookings. While yields were down on short haul compared to the prior year level, the increase in the intercontinental business. In sum, the expansion over summer and better leverage of our cost base resulted in operating loss smaller than in Q2, amounting to slightly more than €1,200,000,000 Operating expenses were reduced by remarkable 60% in the Network Airlines. Let's talk about Eurowings. The performance of Eurowings for the trends I just outlined for the Network Airlines. However, the capacity decline in the Q3 was less pronounced there because of the airlines' larger exposure to the touristic segment and its relatively higher share of domestic routes, which are less affected by travel restrictions. Nonetheless, adjusted EBIT amounted to a negative €108,000,000 The cargo segment continued to be the bright spot in our business also in the Q3. The industry wide capacity reduction and the grounding of the majority of long haul aircraft caused yields to increase significantly. Against this market backdrop, we played out the strength of our freighter fleet, which normally accounts for just around half of total revenues. We benefit from operating one of the largest and most modern freighter fleets of the world. While total capacity was down 42%, due to missing belly capacities, loads increased and yields were up by almost 50%. As a result, revenues almost reached the prior year level. Based on its 9 month profit of €446,000,000 Lufthansa Cargo is on course for a new record year. In contrast, the adjusted EBIT of the MRO segment declined to a negative €86,000,000 in the 3rd quarter and a negative €208,000,000 in the 1st 9 months. Some improvements in markets with significant domestic travel flows such as China continue to be offset by weak demand for aircraft maintenance elsewhere in the world. In addition, write down of receivables and spare parts burdened the segment's results, accounting for the largest part of the year to date loss. Profits in the catering segment continue to be under significant pressure as well. The effect from global capacity reductions and corona related service restrictions on board was only partly offset by a further step up of cost savings. Finally, the adjusted EBIT in the other business and group functions segment improved to a negative €77,000,000 in the 1st 9 months. Last year, this figure amounted to minus €169,000,000 The reason for this significant improvement was a strict cost discipline in our central administrative functions. In summary, the average operating cash spend in the 3rd quarter amounted to €200,000,000 Please note that the definition is based on our operating cash flow, excluding changes in working capital, tax payments and other non operational items. Let me also highlight some larger effects below the adjusted EBIT line. Adjustments, that means the difference between EBIT and adjusted EBIT, amounted to almost €1,700,000,000 in the 1st 9 months. €1,400,000,000 of adjustments alone relate to aircraft impairments. Since the beginning of the crisis, we decided to retire 110 aircraft earlier than planned. This includes the entire Airbus 380 and Airbus 340-six hundred fleets, although some of these aircraft could be removed from long term storage should market conditions improve much quicker than currently anybody expects. In addition, we booked €764,000,000 of losses related to fuel over hedging in the 1st 9 months, slightly less compared to the half year figure. €141,000,000 of losses were cash effective in the 3rd quarter. We expect further cash out in the Q4 given that fuel consumption will continue to be very low compared to our original plans. The effect will fade out though in the Q1 next year, because we stopped hedging at the beginning of the crisis. Let me now turn to free cash flow. Our performance in the Q3 highlights that cash preservation has become the absolute focus of the Group Financials Management. In the past 3 months, the operating cash drain was offset by the following three factors. 1st, new bookings, especially related to the uptick in leisure demand over the summer, contributed to a net €252,000,000 2nd, we managed working capital very successfully by putting a lot of focus on receivables collection as well as the extension of payment terms with suppliers. This created a positive contribution of €175,000,000 3rd, we agreed on the deferral of import turnover tax at Lufthansa Technik, resulting in a positive cash effect of €339,000,000 in the quarter. As a result, almost the entire free cash flow decline of €2,100,000,000 was related to the payout of €2,000,000,000 of customer refunds, as shown on the chart. This means that we have largely worked through the queue caused by the exceptional large number of flight cancellations in the early phase of the crisis. Refunds hence will be significantly lower in the Q4. My comments should have made clear that we are pulling all levers to ensure that we minimize cash outflow as fast as strong as far as possible, especially in light of the again more challenging industry outlook for the winter. We are very quick in reducing fixed cash costs at the airlines by more than a third. Short time work continues to play an important role in this regard. However, around half of the decline in personal cost is driven by another factor, including the reduction of the workforce and less overtime in bonus payments. Out of our long list of measures to protect liquidity, let me also highlight the deferral of aircraft deliveries and related payments. We expect investments to amount to just around €1,300,000,000 in both 2020 2021, although we still expect to take delivery of around 45 new aircraft in these 2 years. Many of them will be financed by the reallocation of prepayments made for other aircraft, which deliveries will be delayed or postponed. In individual cases, we will also take advantage of sale and leasebacks to reduce cash out in the short term. For example, we turned one outright purchase of Airbus 350 into an operating lease in the Q3 and also leased 1 new Boeing 777 freighter for Lufthansa Cargo. As a result of all these measures, adjusted free cash flow declined far less than the adjusted EBIT in the 1st 9 months. This limited the debt increase since year end 2019 to around €2,300,000,000 only. At the end of September, net financial debt amounted to €8,900,000,000 Pension provisions amounted to €8,100,000,000 affected by the negative performance of planned assets. Ladies and gentlemen, our quarterly results showcase our success when it comes to reducing cost and preserving liquidity in this unique situation the industry is in. This gives me confidence that we can also master the challenges ahead. We will enter the winter period with liquidity of €10,100,000,000 in addition to €3,800,000,000 of cash at hand, €6,300,000,000 of the stabilization package in our home market continued to be undrawn in the end of the Q3. This includes the full €4,500,000,000 silent participation 1 of the German package, which will be accounted for as equity. Drawdowns of €2,700,000,000 included the €1,000,000,000 KfW loan and €1,000,000,000 silent participation too in Germany, as well as €350,000,000 of stabilization measures in Austria. Finally, the capital increase through which the German Economic Stabilization Fund built its 20% stake contributed €300,000,000 of equity. Ladies and gentlemen, giving a reliable outlook regarding the future development of this unique crisis is more difficult today than it was ever before. No one can predict how long travel warnings, entry bans and lockdowns will last. No one can predict how air travel picks up again and when we see a sustainable recovery. From the limited visibility we have, we just know one thing for sure already. The upcoming winter months will be an immense charge, not only for us at Lufthansa, but for the whole aviation and travel industry. We expect the demand for air travel to remain low due to the rapid increase in the number of new COVID-nineteen infections, resulting in further lockdowns and travel restrictions. We revised our capacity plans for the Q4 based on our approach to just operate cash positive flights. Our airlines will offer a maximum of a quarter of the 2019 capacity. The number of guests on these flights expected to be less than a 5th of the previous year's figure. In this historic crisis, we believe that our business model offers strategic benefits. One of them is our hub setup. Its advantages are more evident than ever. As fewer people travel by air, serving point to point connections into many destinations in an economic way becomes impossible. Many domestic and European point to point offers were already canceled in the light of this logic. Through our hubs, however, we bundled traffic flows from many different origins. For us, this creates opportunity to absorb passengers from O and Ds where demand has become too low to support a point to point connection. It is a mathematical certainty in our industry that less demand leads to more bundling over hubs. Despite this strategic advantage, we know that we have a lot of work to do to ensure our group will emerge stronger than others from this crisis. Our short term focus is on protecting liquidity. At the same time though, we are not losing sight of the need to adjust our business to the changes brought about by the corona crisis. We have therefore initiated restructuring measures across all business units and functions, and we are determined to create a significant positive impact on all areas of the business at the necessary speed. The program will focus on identifying additional measures to reduce costs further in the long term, and it will make the Lufthansa Group sustainably more efficient in all areas. The corona crisis is fundamentally changing our markets and the Lufthansa Group has to adapt. We will become smaller, we will become less complex and we will become more efficient. We have already made substantial progress in adjusting our size to the new conditions. Over the course of the last month, around 14,000 people have already left the group. This alone will result in a sustainable reduction of personnel costs by €900,000,000 per year. And we will continue on this path consistently. We will use the number of top management positions at Lufthansa by 20%. In Germany, we agreed on a crisis package with the unions UFO and for Einingon Cockpit, representing our cabin and cockpit crews respectively. The agreement with UFOR covers the whole period until 2023, the one with the Fayan cockpit dates until the end of the year with negotiations of a follow-up agreement ongoing. We are determined to save as many jobs as possible in the Lufthansa Group, But to do so, we need the cooperation of the collective bargaining partners. Therefore, we are negotiating crisis measures with all employees groups to stabilize the company. Just earlier this week, we have resumed negotiations with Veri to reach an agreement on crisis contributions for the more than 24,000 collectively bargained ground workers. And I can only repeat what I have already said in August, when we presented the Q2 figures. Unfortunately, the pace of negotiations is slower than I had hoped, clearly too slow and for sure slower than this crisis actually requires. And this is why we have also started negotiations with our various workers councils in Germany on a so called reconciliation of interest process. Together, we will talk about reorganization plans and the necessary reduction of 2,800 ground and administrative jobs in Germany. And we will also talk about the reduction of 1100 cockpit crew members in the main airline Lufthansa. The situation is of course completely new for both sides. After decades of growth, we are now talking about shrinking the business and elimination of tens of thousands of jobs. But this pandemic will not be over in a few months. We cannot simply wait this crisis out. It will burden our business, our industry for years to come. And its sheer scale makes a significant contribution from all employee groups inevitable. Ladies and gentlemen, as I mentioned before, giving you a reliable outlook is not easy in these challenging times. Nevertheless, we wanted to share some of our short term financial expectations with you today. Based on our restructuring initiatives and pending the potential closure of labor agreements in the next few months, we expect a negative impact on adjusted EBIT in Q4 from these restructuring expenses and other crisis related one time effects. Excluding these effects, we expect the operating cash drain to be limited to around €350,000,000 per month in the Q4. The overall adjusted free cash flow, which also captures working capital, investments and other non operational items, will be less negative in the 4th compared to the 3rd quarter, 1st and foremost because of significantly lower customer refunds. Looking ahead, we continue to stand by our previously communicated goal. During the course of 2021, we want to return to positive operating cash flow. This depends on operations of a minimum of around 50% of our 2019 capacity. These gentlemen, not all airlines will master this historic crisis equally well. I'm convinced that the Lufthansa Group not only can get through this crisis, but can also defend its positions as Europe's leading airline group. Are working consequently on the restructuring of the group. Our solid liquidity position equips us for the upcoming winter months and we have a significant advantage due to our hub strategy. In addition to this, we will still strive to provide our customers with the best airline product and the best travel experience, premium made in Europe. This includes a consistent and industry leading approach regarding hygiene measures. We believe that health protection and freedom of travel can go hand in hand, for example, through comprehensive rapid testing. The West airline product includes providing a maximum of flexibility to our customers regarding the rebooking of flights, and it of course takes sustainability into account. We are determined to use this crisis to further reduce our climate impact and to strive for sustainable and value oriented growth rather than blind growth. The global society and a modern world economy cannot exist without transport in the air for long. Flying has an enormous value for societies, culture, education, economies and the international understanding. The connection between continents makes the world more stable and more peaceful. Tourism is essential, especially for structurally weak regions. And private experiences such as studying abroad, friendships across the globe can only be made possible and maintained by flying. And we firmly believe that in the long term, this will not change despite the corona crisis. The core of our business will remain the same, during the crisis and shortly afterwards. It's us who are connecting people, cultures and economies. Thanks for your attention. We now look forward to your questions. The first question is from the line of Daniel Ruska from Bernstein Research. Please go ahead. Good morning, gentlemen. If I kind of do a back of the envelope year, that depletes liquidity kind of back down to levels that may become uncomfortable as you head into summer. Can you talk about the scenario range you have in mind for the next couple of months and what how that relates to the need for additional financing? You've previously said that you had enough time to wait for markets to improve and financing conditions to improve to do aircraft sales and other financing actions. Is that still true? And in that context, thirdly, can you talk about your progress on potential financing sources within the near term, let's say, within the next 6 months on more fleet sales, renegotiating any of the maturity dates, maybe going back to the government for more support. So kind of three questions all centered around, is there enough cash to get through next summer and to an end through next winter? Sorry, I don't support the first part of your question. With EUR 10,100,000,000 or let's say EUR 10,000,000,000 of liquidity and burning through EUR 350,000,000 in the worst part of the year, the winter to come, we have a lot more room to breathe than you are indicating with your question. And of course, there is, as we all know, additional measures to raise, be it debt in the market if required. So we stick with our statements that there is no need for fire sales in our portfolio and there is no need for sale and leasebacks at unfavorable terms like we have seen them in the industry over the last weeks. We feel in a strong liquidity position not just for the winter, but for the whole year of 2021, whatever it will bring, and if necessary, for another winter between 2021 2022. The answer is yes, we stick with our statement. And I'll maybe I'll ask what level of cash liquidity is kind of the comfortable minimum you would want to avoid breaching as we go through 2021? Let me give you an answer which reflects to the situation we had this spring. As you know, we were close to a difficult situation with EUR 2.8 1,000,000,000 cash remaining out of more than EUR 2,000,000,000 belong to our customers, which we have, as you all know, have paid out by now. So if you do a rough calculation, you obviously know that we don't need to be anywhere close to that number. We had to be near a few months ago. And we also are still comfortable that we will be cash positive in 2021 once the market picks up to a 50% capacity being allowed to be used for us. So again, my answer, I think, is much more positive than your question is implying. Okay, understood. Thanks. Next question is from the line of Ricksandra Hardu Duzir as a private investor. Please go ahead. Good morning. Three questions please. First, you guide an average cash burn of $350,000,000 a month for Q4. Was this a cash burn in October? Or is this guidance relying on a traffic recovery during the Christmas season? I'm asking particularly because from previous statements, my understanding is that July August were strong, that in September the cash burn was higher than you guided an average for Q4. So did you see the improvement in cash burn from September to October? And if yes, what was the driver for this? 2nd, you were one of the first airlines to address rapid tests testing. Could you please talk about your experience so far with these tests? And from discussions with politicians, producers, airport, how confident are you that rapid tests will be extensively used at airports in your home markets next summer? And third, what is your view on the airport landscape in Germany going forward? Most airports in Germany were generated were generating for many years losses before this crisis. And you mentioned that point to point connectivity is likely to suffer in the future. So do you expect the government and local politicians continue to support the airports that did not prove a viable business model already before the crisis? I think it is quite relevant for you because if airports are artificially kept alive and allowed to attract airlines by offering tariffs that do not cover their cost, it impacts your originating catchment area? Thank you. Yes. Thank you very much for these comprehensive questions. Our 3.50 cash frame guidance for Q4 is an average number. And to be honest, this can only be done for more than a month because you have things which happen at the end of the month as payments for which you don't do every week. So there is no upside on doing this on a weekly or daily logic. Why are we so optimistic? The refunds will be significantly less in Q4 than in Q3. Remember that number, €2,000,000,000 refunds in Q3 are basically the whole negative cash burn of the whole quarter we are reporting on today. And at this point, I of course can tell you that September was worse than July August, as we pointed out, but it's too early to give you any indication on individual months for Q4. At testing, as you probably know, we have started some testing on the mild cases between Vienna and Berlin, also between Munich and Hamburg with our own staff in that regard. So we just think it's important now to gather information on testing to eventually be ready to use this to relaunch global air travel. And we are in talks to our partner United that we will be starting something between Germany and the U. S. They are also doing between the UK and the U. S. So I think there's various things in the world happening that we all gain experiences. I mean, to close contact with the CEOs of the big pharmaceutical companies, how they are progressing on their testing qualities. So I think this will be even before vaccination comes into play, testing will have an impact on our industry. Airports, I do believe there is a political will in a country like Germany, which is very distributed wealth to also support smaller aircraft as far as that is legal. And we all know there's new restrictions on this. So what you are being afraid of that there will be similar supports of small airports to point to point airlines like in the past. I think that is legally impossible, will be limited. But generally, I do believe, and if you read the papers in Germany today, the government has understood how important aviation is, how important aviation is for the German economy, which as we all know is the most export oriented economy in the world, and therefore, be it ANSPs, airlines, airports, they will receive certain support from the government in the legal framework, which is a lot about. Thank you. Next question is from the line of Stefan Furlong from Davy Research. Please go ahead. Good morning, Carson. Good morning, Dennis. Just interested in your comments, I mean, I know it's kind of a scenario where you would see positive operating cash flow, if dependent on around 50% of capacity of 2019. In terms of the mix of the business maybe next year or just crystal ball going forward, do you think it's going to be more short haul and long haul or vice versa, more investments or growth in certain hubs or, let's say, the passenger airline rather than, say Eurowings or taking things like say by product, the likes of premium economy. So I'm just interested in your view in general maybe next year, but more longer term, because certainly the mix of the business, not just for Lufthansa, but for everyone is going to change to some extent? Thank you. Hello, Stephen. I think what we are seeing and we did see, for example, in the summer is that short haul comes back faster than long haul, not surprisingly, also less travel restrictions, not right now to be honest, while we speak, but in the summer. And of course also the short haul helps us even more based on our hub strategy, where we are seeing traffic flows via our hubs, which we have not seen in the last years because they were all served point to point. And now these point to point volumes are too low to fill a flight, and we all know point to point airlines tend to have only fairly large aircraft. Now suddenly those volumes go by our hubs where we can bundle traffic. So I see that positive element we saw in the summer coming back to us when we see a recovery of traffic. And the second thing I can say is that obviously leisure comes back faster than corporate. We saw that also in the summer. It's also understandable, but let's not forget this whenever I talk to corporate customers, there's such a backlog of travel needs. So I'm sure once restrictions will fall, testing, vaccinations, other things come into play, we will also see a stronger comeback of corporate than we have seen that short window this summer, I'm convinced. But again, short haul faster than long haul leisure faster than corporate. And product co relate to that to a certain degree. We all know seasoned business class, there's more corporate. 1st class, by the way, is nowadays more leisure than corporate, wealthy French, Germans, Swiss people, but as a small segment. So basically, I think the first two statements are important ones. Thank you. Next question is from the line of Jarrod Castle from UBS. Please go ahead. Thank you and good morning everyone. There were some comments from Fraport, kind of talking a little bit about 2021 and saying maybe 35% to 45% traffic guidance. So I just want to get an idea, is that also in the context of them having conversations with you and your views on traffic recovery? Secondly, you spoke a bit about German airports and support there. Obviously, there's challenge from Ryanair about the financial aid. So just any thoughts from your side, how you see things going in that respect? And then just lastly, where are we now in terms of asset write downs and potential disposals within the group? Thank you. I will take the first two and Worten Vormen will answer the third one. I think the Frappert comments are not out of line with our comments. We are all going to be starting with a very slow Q1. I think the next 25, which I indicated is also the 25 for the Q1. And of course, FarPod and us are in the intensive talks because one of the upsides of this crisis is that we will see probably more focus on intermodal traffic, people approaching the airport by train and then moving on to a new flight, which we have been pushing for a long time, but we now see new energy behind that, both from us, from the German railway, from the Swiss railway, the Austrian railway and also the government itself. So there is a link between the airports and us obviously, and when I talk about reaching 50% next year, of course, that's not necessarily an average, is that we were hoping to be cash positive once we break through that 50% line. Financial aid, I think to be honest, a lot of PR is done on that one. I think every global airline has received financial aid, at least all 3 players in Europe, all 3 players in the U. S, all 3 players in China and surely our friends from the Gulf and Istanbul were government owned anyway. And even the carriers you are quoting who are only doing short haul where there is much less financial impact have all received financial aid, sometimes in percentage of their turnover more than Lufthansa. So I think we should all separate between the PR done around financial aids and running to courts and the truth of the facts. And I think once this crisis gets stronger and longer, you see a lot less press conferences also from my competitors on this than in the 1st weeks. Okay. Gerard, thanks for your question with regard to the impairments. So we have done, 1st and foremost, our fleet impairments in Q2 and Q3, which amounts to SEK 1,400,000,000 and this is mainly located for the A380 long term storage and for the A340-six hundred. So SEK 1,200,000,000 out of these SEK 1,400,000,000 are arising from that. In addition to that, we have some impairments with regard to our receivables in the amount of roughly 2 100 million. For the remainder of the year, we can't rule out, of course, further impairments. But to be honest, so we have done the impairment for our fleet, and that was by far the biggest chunk. And so there is no planning for additional impairments in the section of our fleet. So therefore, we cannot rule out that, but we have seen by far the biggest chunk in Q3. Okay. Thank you very much. Next question is from the line of James Hollins from Exane BNP Paribas. Please go ahead. Yes, good morning. First of all, on staff reductions, I think you previously talked about 22,000, but I think you indicated maybe a month ago that, that number needs to go higher. I was wondering if you could put a number on it or at least a rough one. Secondly, the VC union negotiations, looks like the deal ends obviously fairly soon. I was wondering how the relationship is going and whether we should expect a longer term deal with the all important pilots. Final one, just following up on Frapphor. You don't normally talk about how you're working well with them. I was just wondering how we're thinking about negotiations on tariffs for 2021. Thank you. On staff, the 22,000 in the way is an old number because we increased the number of aircraft to be permanently taken out, and that number resulted in basically somewhere around 27,000 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es or the way we put it is that it would be great, I keep telling the unions, if they pull together with us in a way that we can maintain at least 100,000 jobs in Lufthansa, which I think would be almost a psychological target for the unions, for the staff, for all of us, maybe even for the German public and German politics to make this a company of that size also in the future. So kind of starting from 130,000 kind of gives you the same indication. Of course, there's short time quotas in that, so talking about FTEs and staff is not the same thing as we know. But this is a moving target. And to be honest, the more unions will allow us to lower our costs, the more people can stay in Lufthansa, the more they don't, and I come to that now with the pilots, the more have to go. And I think it's important, especially for those of you not from Germany, to understand that in Germany, we have a 2 tier system. 1st, you talk to the unions about lowering costs, allowing part time models and all these things. And then we also talk to the workers councils about forced leaves. And the less we reach agreements with the unions on the first element, the more people will be forced out by the 2nd module when you talk to the workers' council, which in Germany takes almost up to a year, so we're probably talking sometimes mid 2021, when even without agreements with the unions, we are legally allowed to fire people in the amount required. And therefore, I am positive that the units have a strong interest to come to solutions with us before we come to that second step sometime in '21. So I think that's a German specialty for those of you living abroad, maybe it's important to understand. And that's why always in time, we usually reach agreements with the corporate union. Obviously, we have an agreement to the end of the year. I promise you we'll get one for next year because otherwise the impact on the staff will be much worse than if they have an agreement with us, and the staff knows that. Every time I fly, I get the same question. So I think it's in the joint interest of the unions and us to have more innovative solutions agreed in the first module before we move to the second one where with the workers' council in a more legal process, you talk about forced dismissals. On Farport, it's still the same. When I talk about quality and cost in Fraport, I'm not happy. When I talk about the location of Fraport, its connections to the German railway system, to the German freeway system, it's an airport where we are bundling our hub activities right now. But there is no agreement yet with Farport on tariffs in 2021. But you have seen their numbers, so I'm quite positive that there will be room to maneuver with them. Thank you. Next question is from the line of Jamie Rowbottom from Deutsche Bank. Please go ahead. Good morning, gentlemen. 2 from me. First, it's helpful to get that guidance on the expected operating cash burn for Q4 of €350,000,000 per month. In addition to that, it feels like there may be a number of smaller amounts that could potentially add up to a larger figure, things like deferred taxes, deferred supplier payments in addition to some further refunds and a bit more cash out on the fuel over hedging. Is it possible to give a rough idea as to how much you think those items in sum might weigh further on the liquidity in Q4? And then second question, what's the level of flexibility available to you in terms of calling on the €4,500,000,000 of silent participation 1. Presumably, you can take it in tranches. And if so, is there a minimum amount for those tranches? Thanks very much. I start on the second one and hand over to Wilken for the cash out in Q4. No, we have full flexibility agreed with the German government and also the Swiss government and also the Austrian government, by the way, to somewhat less degree, but your question is on the silent participation, which we only have in Germany, we have full flexibility on that. When do we take it, in which sizes, slices, tranches or not even everything is not required? And Jamie hello, Jamie. And to your first question, I mean, we have to differentiate between free cash flow and our cash flow in definition. So the free cash flow will be less negative in Q4 than in Q3, and this is mainly driven by the refunds. By the lower refunds, we are expecting to pay. And the €350,000,000 cash drain you were mentioning is something like an adjusted KPI because we want to exactly not including all these volatile elements like tax payments or refunds or early bookings. So therefore, we did that excluding the working cash the working capital elements. So therefore, the EUR 350,000,000 cash drain is more or less related to our operations. So where can our operation save money and bring the cash drain down? And so as you mentioned, so we are confident to reach the 350,000,000 but these volatile elements are excluded. Could I just follow-up with one example? So it looks like Lufthansa Technik, for example, deferred €240,000,000 of tax in Q3. I mean, is that something that probably now gets paid in Q4 or is it a longer deferral perhaps on that particular one you could add something? Yes. No, this tax deferral goes into 2021. So if you ask for Q4, there will be no further tax payments of that nature being revised from what we achieved in Q2 in Q3. This will happen in 'twenty one. Okay. Thanks. Next question is from the line of Johannes Braun from MainFirst. Please go ahead. Yes. Hi. Thanks for taking my questions. Firstly, again, on the free cash flow and cash burn. You kind of mentioned it already in the previous question. But overall, can you quantify how much of, let's say, cash outs have been pushed into 2021 within your good working capital and cash management this year? Then secondly, I think you recently signed an agreement with Munich Airport regarding long haul capacities and fees. Can you quantify the savings here? And then lastly, just on the union talks, it's my understanding that all 3 major German unions are opposing the Ocean platform. So how do we stand with Ocean, please? I start with question 23 and Wilkin will take the first question. With Munich Airport, we indeed have signed an MoU, which includes cost savings and efficiency gains, but the number of savings, the volume will very much depend on the volume of flying. This is a long term agreement, so I cannot give you an insight of that at all as long as we don't know what will happen. On the unit talks, with our activities on the Eurowings long haul, I mean, there is obviously politics being played. I've said numerous times, we will take the Eurowings intercontinental aircraft, which we had before the crisis, we are forced to put them into a new AOC. We used them in SunExpress and Brussels before. Want to bring that together, including that no more long distance flying in City Line will take place into a new OSC, and that will just be not just a bundling, it also will reduce the number of airplanes in this element To allow as many people as possible to find jobs who are now losing their jobs, we will offer part time work. That reduces their monthly pay, but it's based only on the fact that we are putting more people in there by forcing them into part time or allowing them to part time rather than sending too many people into unemployment. So that I think is the whole secret behind the story. The brand will be Eurowings, will be less than these 14 aircraft long haul and we had 8 aircraft short haul last year, so 22 total, and we'll be operating 3 aircraft in the winter schedule and 2021 summer probably go up to 7 aircraft coming from 14 before. So this is nothing like whatever undermining our restructuring efforts in the main airline or whatever sometimes you read. This is part of the, let's say, PR around our negotiating, which are difficult, not as difficult as in other countries, but still it's going to be a smaller Eurowings intercontinental fleet for the next years, and we pay the same salaries as before but on a pass up basis. Can I just quickly follow-up? To what extent do the unions have a say in the Ocean platform strategy? This is why they're using PR work to give us a difficult time because they don't have a say on where we allocate our aircraft. Remember, we had that big fight with our unions for 3 years when I took the job? In that 3 years, we broke every rule that we can now or every limitation that we can now put the aircraft where we want to. One exception was the minimum number of aircraft pre COVID where we had agreed on with the main airline pilots. But everything else, there is no need for us to agree with the units on that, and that is gone. That's history. Okay. And then we are moving to your question, Johannes, with regard to pushing the cash out to 2021. Of course, our major target is to move our cash out in future because we want to bring that into consideration with our booking development that we have this in parallel. In the amount of money we are talking about, it's by far less than €1,000,000,000 And topic wise, we have just discussed the deferral of the tax payments, and have monetized some FX hedges. But overall, it's a triple digit €1,000,000 number. Just one follow-up on that one, please. I think on Slide 10, you show net CapEx in Q3 only at some €23,000,000 so almost nothing. Can you I mean, how much of the CapEx will then fall into Q4 and also again in 2021? With regard to the CapEx, that number was that low because we have a 100% stoppage of all projects. And we as Carsten Spohr already mentioned, we could use prepayments within Boeing for getting our 7 77 aircraft. And that was the reason why the net CapEx was so low on one hand. And on the other hand, we are starting to sell some spare parts, especially in the Technik, where we were able to reduce our net CapEx overall. For the upcoming year, we are expecting roughly €100,000,000 to €200,000,000 additional CapEx. Jonas, keep in mind that our external guidance for CapEx is on gross CapEx, right? And what you see on slide number 10, that's net CapEx. Exactly. Yes. All right. Understood. Thank you. Next question is from the line of Neil Glynn from Credit Suisse. Please go ahead. Good morning, everybody. Just 2 for me, please. The first one, Carsten, you mentioned earlier working with United on testing at airports. But just thinking about long haul capacity restoration, I mean, how you eventually make decisions, just interested to what extent will this be agreed with JD Partners, producing maybe a more cautious capacity add back than otherwise as you can serve the same demand more efficiently? Or might you be in a greater hurry to restore as full a schedule as possible than that question might suggest? And then the second question, just on management replacement. We've obviously had some executive board departures this year. Thomas at Swiss is obviously leaving at the end of the year. How high of the priority list is a new CFO and is a replacement for Thorsten, for example? And how do you think and looking internally versus internally? Can you give us some color on that? Neil, could you go on mute? Thanks. Neil, if I got your first question right, I mean the speed of recovery, the speed of introduction of testing, I mean all that mainly depends on the government. We have been talking to the White House and the Homeland Security guys in Washington and of course our German counterparts for months now to open up that bubble between the U. S. And Germany. It was obvious nothing will happen before the election, but I think there's a strong interest on both sides of the Atlantic to reopen that channel, and let's not forget without leaving the subject, this transatlantic relationship, which one way or another, whatever happens in the next hours, I think needs refinement, needs people to travel back and forth. So I think whatever will come now from the U. S. In the next days or hours, I think the transatlantic cannot be frozen as it has been now for months. If we want to revitalize that relationship to the U. S, and I hope that it's another push for, especially in that market, pushing testing into opening up. If that was your question, good. If not, please come back because I wasn't quite sure if I got that right. On the management changes, yes, there is a few. But if you have interest in looking for a job, I need to tell you that major decisions are already made or about to be made and will be communicated soon. And also, I think, happy to say that this is my last Q3 or my last Q, not Q3, my last quarterly results conference without a full time CFO on my side. So I expect the person to be on board for the next call, which we all are going to be having with you next year. The lucky position of having maybe worked through this period and the skies are open again or at least semi open. As you actually plan capacity and I assume to your point earlier, you'll clearly be focused on cash flow generation, I assume, rather than just racing to restore as full a long haul schedule as possible. Just interested in your thoughts how you work with your partners to perhaps manage capacity restoration more cautiously to maximize cash flow rather than making decisions on a stand alone basis to simply get all of your planes flying again? There is no push for us to get all planes flying again. As you know, we have taken many, many airplanes out. The largest airplane of the fleet, 380s, 346s, 747s are going out. So this is not a company pushing to restore the whole network as quickly as possible. It's all about cash optimization. This includes those markets where we are allowed to talk to our partners. We're in a lucky position or not lucky because we worked hard for it, but in a good position that in all major intercontinental markets, we have joint venture partners and are allowed to talk capacity, both U. S, Canada, China and Singapore and Japan. So it's basically 5 markets, if you want to split Canada and the U. S. So we are in talks with all these partners who are looking for a similar optimization of cash contribution, and we slowly bring up the capacity. But don't forget, on long range, a lot is now driven by cargo. Our long range network is, to a certain degree, driven by the belly revenues where we have flights where we even don't open up for passengers like SWISS is doing or in the case of Lufthansa, we sometimes have only 30, 40 passengers on board, but we'll make even a 0 to make that flight cash positive because of the cargo contribution. So if that answers your question now, we are cash optimizing our ramp up on the long range, very careful. Very helpful. Thank you. Next question is from the line of Andrew Lobbenberg from HSBC. Please go ahead. Hi, Carsten. Hi, Dennis. I wanted to ask about the difficulty of getting the unions to engage because you commented today that it was going slower than you'd hoped, which was the case at Q2. And how does that interrelate with basically the answer that you gave to Daniel's first question, which was exuding confidence about the liquidity. So I mean, just how do you get unions to engage with a sense of urgency when you're extolling the liquidity security of the business? And then as the second question, can you talk about the potential opportunity for the cargo business around vaccines? Is that a great potential or is that too complicated and specialized the business to be relevant? Yes. Andrew, on that first question on unions, that probably is another surprising answer or not another, but surprising. There is no such thing as urgency because of the we talk about Germany, also true in a certain way for Austria and Switzerland by the way and Belgium. So we are luckily operating in 4 whole markets, but let's talk about Germany more focused where we have a short time system by the government, which basically takes away the urgency, and that's the exact political will behind this system. This short time work scheme is intended to take urgency away from both sides, from the unions and from the employers in a crisis like this. So the government is paying the majority of the salaries of our unrequired people at the time, pilots, check-in staff, mechanics, flight attendants, and this was extended by the German government to the end of 2021. So basically whatever we do between now and the end of 2021 is with the unions is not that great an impact because it's not needed and the impact is already there. The bigger question comes after that short time scheme, which will be beginning of 2022, and that of course is after these agreements and legal procedures I just explained, which we are enforcing with the workers' council. So within 2021, either with an agreement with the union or if we don't have 1, which I don't think, we'll have this legal proceeding we are preparing with the workers' councils that we can still dismiss people even without an agreement with the union. Of course, unions know that just as well as I do, so there is a joint interest to find solutions, especially after December 21, but the urgency in terms of liquidity is not really there because the liquidity we are optimizing right now with our short term schemes is much higher than anything you could ever get from a union and who would not take the government money in any country if you have it for your availability. It's complicated, I know, both the 2 tier systems explained and the German scheme on short term, but I think that drives our negotiations and basically is also the reason why we are not that in an urgency and surely the units are not, some people on the outside probably expect. On the pharma business in cargo, indeed, since many years, the so called cooling business, which is mainly pharmaceuticals, is a big high yield business for cargo, and there's only a few airlines in the world who have a network to provide to door to door cooling of cargo products, and Dufthansa Cargo is leading in that. So as sad as it is, this crisis and of course the need for a destination, once it's there, this will be a pretty good business for Lufthansa Cargo because not even all cargo in the airlines in the world or cargo hubs can participate. We have now I think 35 destinations around the world already equipped for cooling products. Munich just added because it was initially only Frankfurt in Germany, and this probably will be done by only a few carriers to a large degree, and we are one of them. And actually, the other big one in the world is Swiss, world cargo. Lovely. Thank you. Next question is from the line of Carolina Dors from Morgan Stanley. Please go ahead. Hi, good morning. Thanks for taking my questions. I have 3. 1, on your employee expenses, how much have you benefited from furlough, meaning how much employee expenses would have been higher if you weren't using this government's programs? My second question is in regards to the pensions and liabilities, which I appreciate is going up because of the decline in interest rates. But with the restructuring of the business and reduction of employees, should we expect a increase in the cash out coming from these liabilities and by how much? And my final question is, when you expect to and I appreciate it, but when you say by 50% of capacity, you're going to be free cash flow neutral, What is the assumption on evolution of yields and on the slot rules or the waiver of the slot rules for next year? Caroline, on the first question on the German or not the German, on the European schemes on short term support, 50% of our savings on personal costs are coming from these short term schemes and the other 50% are coming from reduced overtime, no bonus payments, whatever, so things we have in the contract already. And again, the other half comes from the European, in our case, German, Swiss, Austrian, Belgium short term schemes from the government. When it comes to restructurings, we're going to be seeing provisions in the Q4 as we announced today of 2020, but the cash out will only happen in 2021. And the third question is on the waiver, was it travel rules or slots? I think that was assumptions on yields and potential prolongation of the account slot waiver. Yes, slot waiver. I've been answering this question the same way now for a year and with all my contacts in Brussels and Berlin and Bern and Vienna, we all know there is a huge environmental discussion out there. How can governments not give us a slot waiver and force us to do ghost flights? I don't think that will happen. So I'm clearly expecting the slot waiver to be extended, and that I think is the right thing for the industry, for airports, for airlines, truly for the environment. So I expect that to be going on until we see somewhat of a normal in aviation volumes I think it does. Otherwise, Karl, just give us a shout after the call. This was actually the last question as part of the analyst Q and A. We'll now turn the call to German language, and we invite the press to ask their questions. I'll hand over to Andreas Bartels. The Erstefrager is from William Wilkes from Bloomberg L. P. I had a question about the U. S. Election. It looked given what you're talking about the need to restore the Germany to U. S. Travel bubble, are you concerned that we might have a bit of dysfunction in Washington over the next few months. And would you call on all sides there to agree to a result and have a kind of cordial conclusion to this election campaign? Thanks. Yes. Hello, William. Well, again, we have been in talks with the authorities in Washington for months on this, constructive talk. I don't think they will be interrupted by whatever the election will bring about, but I rather expect them to continue. Of course, United is also engaged there, I don't think that the election will have an impact on these constructive talks we are in the middle of. Thank you. Thank you, Willy. So the next question, the next question, the next question. The next is from Stefan Beyer from DPA, IFX. Yes. Full time equivalents as a full site sharing of the us. Next to Frager, Stel Tian, Schreiber, RFP, British Intelligence Year of if you have the chart of Zips and Rubbish Brothers, but in Netflix Airlines, and in classes and economy classes, premium economies in Einego undorfenberger Ein. Next to Fragerstel, Tristan Ebner from Deutsche Presser, AGENTOR. Site, Hello?