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Iraq war extends airline crisis - Lufthansa

"Our assessment after September 11 has been proven right: the crisis will not be overcome within one year," the airline's Chief Executive Juergen Weber said at a news conference.

"The end is not in sight and it will be extended through the war that started in the middle of the night," he said, adding that Lufthansa was likely to ground more planes.

Following the US strikes on Baghdad overnight, Lufthansa said it was cancelling flights for two days to Tel Aviv, Amman and Kuwait.

The airline said further decisions depended on how the situation in the Middle East developed. It reiterated that 2003 earnings would not match those of last year but said the uncertain geopolitical situation and sluggish economy made it impossible to give a firm forecast for the year.

On Wesnesday, Lufthansa said its 2002 operating profit leapt to 718 million euros from 28 million a year earlier when earnings were hammered by the September 11 attacks.

The 2002 result implied a fourth-quarter operating loss of 72 million euros, wider than most analysts had expected.

Yesterday, the company added that full-year earnings per share came in at 1.88 euros compared to a loss per share of 1.66 euros the year before.

The company slashed its net debt to 1.1 billion euros ($1.17 billion) in 2002 from 3.8 billion, while cash flow rose by a third to 2.3 billion euros.

Airline officials declined to comment on earnings for the first quarter, but said that the passenger mix on its planes showed a decrease in business passengers by one to two per cent in the first two months of the year.

Lufthansa shares rose despite the gloomy outlook, with traders saying the airline was a rare example of financial strength in the industry.

The stock stood three per cent higher at 8.91 euros at 1249GMT, compared to a 0.3-per cent rise by the German DAX. Lufthansa said traffic revenue in 2002 fell 1.8 per cent to 12 billion euros. Total revenue was 17 billion euros.

"As a good airline, Lufthansa has good chances of coming out of the crisis stronger," said Klaus Linde, analyst at SES Research, adding that Lufthansa's results were largely in line with expectations.

Rising oil prices in the face of a war in Iraq have put pressure on airline earnings in recent months. Lufthansa said it had hedged its fuel costs by 80 per cent for 2003 and 10 per cent for 2004.

The airline said it expected to make it through the current airline sector crisis without job losses.

Weber said at the news conference that the recent pay deal with 55,000 cabin and ground crew allowed the airline to react flexibly with shorter working weeks and part-time hours without having to return to the negotiating table.

Chief Financial Officer Karl-Ludwig Kley said there was no company-specific reason why the airline's credit rating could not be raised given its financial strength.

"On the debt capital market over the past 18 months we complied with every request of the rating agencies and kept every one of our promises," he said.

"Consequently, there is not a single reason today specific to Lufthansa why our rating could not be raised."

Credit rating agency Standard & Poor's put the German airline on its CreditWatch list with negative implications on Tuesday, along with a slew of mostly US airlines. Kley said he assumed Lufthansa would not see a credit rating downgrade.