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Lufthansa Faces Downgrade as Labor Talks Collapse

Relations go from bad to worse at Lufthansa as negotiations over pilot pay, pension and promotion collapse. The fall-out could see the carrier’s credit downgraded.

Vereinigung Cockpit, the labor union representing Lufthansa’s pilots, revealed today that talks to secure a deal over pensions, pay and promotion have collapsed. The negotiations, begun earlier this year, were intended to secure terms for pilots at the main Lufthansa brand as well as at Lufthansa Cargo and German Wings, the carrier’s budget subsidiary.

The collapse has raised concerns over Lufthansa’s debt. It comes just as financial ratings agency Standard & Poor’s described the carrier’s heavy pension deficit of €13 ($14.5) billion to Bloomberg as a “material credit weakness” and put Lufthansa on alert for a possible downgrade.

Earlier this week, the agency said that the credit outlook for the carrier was stable, but this was later revised to a negative rating. Standard & Poor’s has encouraged Lufthansa to reach a deal, an agreement that would hopefully cut its debt.

The agency also told the outlet that “We consider companies with underfunded defined-benefit plans, such as Lufthansa, as structurally more vulnerable to a prolonged period of low interest rates.”

Vereinigung Cockpit has claimed that Lufthansa’s board is disinterested in resolving the ongoing pilot dispute. However, Helmut Tolksdorf, a spokesman for the airline, has countered this and confirmed to Bloomberg via e-mail that the carrier “still has every interest in solving all open issues with the pilots.”

While changes to retirement plans have been secured with the carrier’s ground staff, Lufthansa has so far been unable to agree on a deal with its pilots. This current dispute takes place against a backdrop of labor grievances at Lufthansa, including a host of walkouts in 2014 and 2015 that cost the carrier a total of €463 ($516) million in profits.

[Photo: Lufthansa]

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FlyingWithers September 17, 2016

Yes, U.S. airlines occasionally have labor problems. There are very few strikes, however. My wife and I have stopped using European airlines for travel to Europe and beyond. BA, LH, and AF are too unreliable. Things happen re IROP, but EU airlines are no longer for us. So sad.

Transpacificflyer September 17, 2016

Whatever the downgrade, Lufthansa will still be better rated and more respected than most of its competitors.