Lufthansa’s Strategic Refinancing and Shareholder Value Creation: Leveraging Low-Cost Debt to Drive Long-Term Equity Upside and Dividend Potential

Deutsche Lufthansa AG has embarked on a strategic refinancing initiative in 2025, leveraging low-cost debt to optimize its capital structure while positioning itself for sustained equity upside and robust shareholder returns. By repurchasing €300 million of its 2025 convertible bonds and issuing new €600 million convertible bonds maturing in 2032, the airline is extending its debt horizon and reducing near-term liquidity pressures. The new bonds, which carry a 0% coupon and a conversion price of €10.7 (a 43% premium to the current share price), reflect Lufthansa’s ability to access favorable financing terms amid its investment-grade credit profile [1]. This maneuver not only lowers interest expenses but also aligns with the company’s broader goal of maintaining financial stability while funding growth initiatives [2].

Refinancing as a Catalyst for Operational and Financial Resilience

Lufthansa’s refinancing strategy is underpinned by its strong operational performance. In 2023, the airline achieved an Adjusted Return on Capital Employed (ROCE) of 13.1%, significantly exceeding its Weighted Average Cost of Capital (WACC) of 7.2%, and generated Adjusted EBIT of €2.68 billion [3]. These metrics underscore the company’s capacity to generate free cash flows, which are critical for sustaining shareholder value. By replacing high-yield, short-term debt with longer-dated, lower-cost instruments, Lufthansa is reducing its exposure to refinancing risks and creating financial flexibility to reinvest in high-impact areas such as fleet modernization and the integration of ITA Airways [1].

The airline’s operational efficiency has further bolstered its financial resilience. In Q2 2025, Lufthansa reported an operating margin of 8.4%, driven by a 3% revenue increase and a network reliability rate exceeding 99% [1]. These improvements, coupled with a strategic focus on reducing carbon emissions to lower operational costs, are reinforcing the company’s ability to deliver sustainable value creation [3].

Linking Low-Cost Debt to Shareholder Returns

While Lufthansa has not explicitly outlined its dividend policy for 2025–2026, its historical approach emphasizes continuity and alignment with capital expenditure priorities, such as aircraft acquisitions and fleet upgrades [1]. The recent refinancing, which includes a tender offer for 2025 bonds at prices ranging from 100.6% to 101.1% of principal, demonstrates the company’s commitment to managing debt provisions in a manner that supports long-term equity upside [2]. By extending debt maturities and securing favorable conversion terms, Lufthansa is effectively reducing its cost of capital, which can be redirected toward shareholder returns or reinvestment in growth opportunities [1].

CFO Till Streichert highlighted that the new convertible bond issuance reflects “strong investor confidence” and leverages Lufthansa’s investment-grade rating to access favorable financing instruments [1]. This approach not only stabilizes the balance sheet but also creates a foundation for future dividend sustainability. While the airline has not provided explicit guidance on dividend increases, its focus on maintaining financial stability—coupled with its projected EBIT growth of 8.5% annually from 2019 pre-pandemic levels—suggests a cautious yet optimistic outlook for shareholder returns [1].

Strategic Horizon: 2026–2028 and Beyond

Lufthansa’s refinancing and operational initiatives are expected to yield compounding benefits between 2026 and 2028. The airline has confirmed its full-year guidance, with the financial advantages of its fleet modernization and ITA Airways integration anticipated to materialize in the coming years [1]. Additionally, the broader aerospace and aviation venture capital landscape is witnessing renewed interest in technologies such as electric air taxis and satellite communications, which could further enhance Lufthansa’s competitive positioning [2].

Conclusion

Lufthansa’s strategic refinancing in 2025 exemplifies a disciplined approach to capital structure optimization, balancing near-term liquidity needs with long-term value creation. By leveraging low-cost debt to extend maturities and fund operational efficiencies, the airline is fortifying its financial resilience while creating a foundation for sustained equity upside and dividend potential. As the aviation sector navigates evolving market dynamics, Lufthansa’s focus on prudent financial management and strategic reinvestment positions it as a compelling case study in shareholder value creation through innovative debt strategies.

**Source:[1] Lufthansa successfully issues convertible bonds worth 600 million euros, [https://newsroom.lufthansagroup.com/en/lufthansa-successfully-issues-convertible-bonds-worth-600-million-euros/][2] Deutsche Lufthansa Aktiengesellschaft launches the offering of EUR 600 million convertible bonds due 2032, [https://markets.ft.com/data/announce/detail?dockey=600-202509030233DGAP_ADHOC_adhoc_2192314_en-1][3] Financial strategy and value-based management, [https://report.lufthansagroup.com/2023/annual-report/en/combined-management-report/principles-of-the-group/strategies-and-goals/financial-strategy-and-value-based-management/]