Other disclosures

46. Additional disclosures on financial instruments
Financial assets by measurement category

As of the current reporting date, financial assets can be broken down into measurement categories with the following carrying amounts:

T143 FINANCIAL ASSETS IN THE BALANCE SHEET
    31 Dec 2023 31 Dec 2022
in €m At
amortised
costs
At fair
value
through profit or loss
At fair
value through
value
with recycling
At fair
value through
value
without recycling
Derivative
financial instruments
as part of an
effective
hedging relationship
Total At
amortised
costs
At fair
value
through profit or loss
At fair
value through
value
with recycling
At fair
value through
value
without recycling
Derivative
financial instruments
as part of an
effective
hedging relationship
Total
Other equity investments 24 24 28 28
Non-current securities 20 20 12 25 37
of which equity instruments 25 25
of which debt instruments 20 20 12 12
Loans 213 213 72 72
Non-current receivables 756 756 460 460
Non-current derivative financial instruments 659 659 86 1,034 1,120
Trade receivables and other current receivables 3,694 3,694 3,974 3,974
Current derivative financial instruments 2 435 437 15 846 861
Current securities 5,263 1,136 6,399 5,415 1,096 6,511
of which equity instruments 5,263 5,263 5,415 5,415
of which debt instruments 1,136 1,136 1,096 1,096
Cash and cash equivalents 1,865 1,865 1,790 1,790
Total 6,548 5,289 1,136 1,094 14,067 6,308 5,544 1,096 25 1,880 14,853
                           

The item shown the previous year in equity instruments at fair value without recycling and without effect on profit or loss is part of the assets held for sale and so is no longer presented here.

The category “At fair value through other comprehensive income” includes derivatives that do not meet the requirements for applying hedge accounting and are therefore accounted for as stand-alone derivatives. This category also includes equity instruments, consisting of money market funds and equity investments, for which the instrument-specific option of fair value through other comprehensive income without recycling has not been exercised. The debt instruments designated as at fair value with recycling without effect on profit and loss relate to the establishment of bond positions as part of the investment of liquidity.

Financial liabilities by measurement category

Financial liabilities can be divided into measurement categories with the following carrying amounts, with the category “at fair value through profit or loss” including derivatives that do not meet the requirements for applying hedge accounting and are therefore accounted for as stand-alone derivatives. In addition, the instrument-specific option to designate the convertible bond issued in 2020 as at fair value through profit or loss was also exercised; its fair value as of the reporting date was EUR 643m. The total change of EUR -22m in the market value of the convertible bond was therefore split into a credit risk-induced share of EUR 42m, which is recognised as an expense in other comprehensive income, and a price-induced share of EUR 20m, which is recognised as income in the trading result.

T144 FINANCIAL LIABILITIES IN THE BALANCE SHEET
  31 Dec 2023 31 Dec 2022
in €m Liabilities
at fair value through
profit or loss
Derivative
financial instruments
as part of an
effective hedging relationship
Other financial liabilities at cost Total Liabilities
at fair value through
profit or loss
Derivative
financial instruments
as part of an
effective hedging relationship
Other financial liabilities at cost Total
Borrowings (without IFRS 16 lease liabilities) 643 10,733 11,376 621 12,087 12,708
Derivative financial instruments 7 751 758 1 882 883
Trade payables 4,125 4,125 4,041 4,041
Other financial liabilities 1,835 1,835 1,691 1,691
Total 650 751 16,693 18,094 622 882 17,819 19,323
                   

The net result of the various categories of financial assets and liabilities is made up as shown in table T145.

T145 NET RESULT FOR FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT CATEGORY
    2023 2022
in €m Interest
expenses
Interest
income
Amortisation,
depreciation and impairment
Result of
measurement and disposals
Currency
result for
Net
result
Interest
expenses
Interest
income
Amortisation,
depreciation and impairment
Result of
measurement and disposals
Currency
result for
Net
result
                         
Assets at amortised cost 7 17 -135 -111 3 -24 -7 -28
Assets at fair value without effect on profit and loss (with recycling) -5 22 59 -1 75 -8 13 -87 1 -81
Assets at fair value without effect on profit and loss (without recycling)
Assets at fair value through profit or loss1) 135 73 208 -1 119 118
Liabilities at amortised cost -408 93 -315 -409 -41 -450
Liabilities at fair value through profit or loss -12 13 1 -12 69 57
Total -425 164 17 145 -43 -142 -429 15 -24 101 -47 -384
                           
1) The negative interest income of the money market funds included in this category stems from the negative interest rates on money market investments in the previous year.

Table T146 shows the carrying amounts and fair values of the individual classes of financial debt. The stated fair values of bonds reflect their stock market listings (Level 1 of the fair value hierarchy). The fair values for other types of borrowings have been calculated using the applicable interest rates for the remaining term to maturity and repayment structures at the reporting date based on the available market information (Bloomberg) (Level 2 of the fair value hierarchy). For other assets and liabilities, non-current receivables, trade receivables and cash in hand carried at amortised cost, the carrying amount is deemed to be a reasonable approximation of the fair value.

T146 FINANCIAL LIABILITIES
in €m 31 Dec 2023 As of 31 Dec 2022
Carrying amount Market value Carrying amount Market value
           
Bonds 6,224 6,018 6,659 6,168
Commercial Paper to banks
Borrower’s note loans 1,143 1,152 1,242 1,162
Credit lines 21 18
Aircraft financing 3,802 3,965 4,407 4,539
Other financial debt 185 192 400 391
Total 11,375 11,345 12,708 12,260
Leasing liabilities 2,568 2,443
Total 13,943   15,151  
           
Financial assets held at fair value by level of fair value hierarchy

Tables T147 and T148 show financial assets and liabilities held at fair value by level of fair value hierarchy. The levels are defined as follows:

Level 1: Financial instruments traded on active markets, the quoted prices for which are taken for measurement unchanged.

Level 2: Measurement is made by means of valuation methods with parameters derived directly or indirectly from observable market data.

Level 3: Measurement is made by means of valuation methods with parameters not based exclusively on observable market data.

In financial years 2023 and 2022, the fair value hierarchy for assets and liabilities held at fair value was as follows:

T147 FAIR VALUE HIERARCHY OF ASSETS
  31 Dec 2023 31 Dec 2022
in €m Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
                 
Financial assets at fair value through profit and loss 5,160 105 24 5,289 5,415 101 28 5,544
Financial derivatives classified as held for trading 2 2 101 101
Securities 5,160 103 5,263 5,415 5,415
Equity investments 24 24 28 28
Derivative financial instruments which are an effective part of a hedging relationship 1,094 1,094 1,880 1,880
Financial assets at fair value through other comprehensive income 1,136 1,136 18 1,103 1,121
Equity instruments 18 7 25
Debt instruments 1,136 1,136 1,096 1,096
                 
Total assets 5,160 2,335 24 7,519 5,433 3,084 28 8,545
                   
T148 FAIR VALUE HIERARCHY OF LIABILITIES
  31 Dec 2023 31 Dec 2022
in €m Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
                 
Financial liabilities at fair value through profit or loss -643 -643 -621 -621
Derivative financial instruments at fair value through profit or loss -7 -7 -1 -1
Derivative financial instruments which are an effective part of a hedging relationship -751 -751 -882 -882
Total liabilities -1,401 -1,401 -1,504 -1,504
                   

Level 3 investments held at fair value through profit or loss included a total of 36 individual investments as of the reporting date (previous year: 35), the acquisition costs of which are the best estimate of fair value for reasons of materiality.

Netting of financial assets and liabilities

The following financial assets and liabilities are subject to global netting agreements and other agreements.

T149 NETTING OF FINANCIAL ASSETS
    31 Dec 2023 31 Dec 2022
in €m Gross
amount
Netted
amounts
Recognised
Net amount
Amounts
not netted
Cash
collateral
Net
amount
Gross
amount
Netted
amounts
Recognised
Net amount
Amounts
not netted
Cash
collateral
Net
amount
Trade receivables and other current receivables 3,818 124 3,694 164 3,530 4,089 115 3,974 70 3,904
Derivative financial instruments – assets 1,096 1,096 183 32 881 1,981 1,981 46 79 1,856
Cash and cash equivalents 1,865 1,865 1,865 1,821 31 1,790 1,790
Total assets 6,779 124 6,655 183 196 6,276 7,891 146 7,745 46 149 7,550
                           
T150 NETTING OF FINANCIAL LIABILITIES
  31 Dec 2023 31 Dec 2022
in €m Gross
amount
Netted
amounts
Recognised
Net amount
Amounts
not netted
Cash
collateral
Net
amount
Gross
amount
Netted
amounts
Recognised
Net amount
Amounts
not netted
Cash
collateral
Net
amount
Trade payables 4,249 124 4,125 32 4,093 4,187 146 4,041 79 3,962
Derivative financial instruments – liabilities 758 758 183 164 411 883 883 46 70 767
Total liabilities 5,007 124 4,883 183 196 4,504 5,070 146 4,924 46 149 4,729
                           
Principles of the hedging policy

As an aviation group with worldwide operations, the Lufthansa Group is exposed to exchange rate, interest rate and fuel price movement risks, as well as to credit and liquidity risks. Limiting these risks by means of systematic financial management is part of Company policy.

Market risk

The major market and price risks to which the Lufthansa Group is exposed are exchange rate fluctuations between the euro and other currencies, interest rate fluctuations in international money and capital markets, and price fluctuations in the crude oil and oil products markets. The hedging policy for limiting these risks is laid down by the Executive Board and documented by internal Group guidelines. It also provides for the use of financial derivatives. The corresponding financial transactions are concluded only with first-rate counterparties.

Foreign exchange risk

For US dollars, the Lufthansa Group is in a net payer position as regards currency risks from its operating business, since fuel payments are dollar-denominated. There is always a net surplus for other currencies. This is especially true of the Chinese renminbi, the British pound sterling, the Japanese yen and the Indian rupee. Depending on market liquidity, currency risks from projected operational exposure are hedged gradually over a period of 24 months by means of futures contracts, which are accounted for as cash flow hedges. At the end of the 2023 financial year, the exposure from operations for the next 24 months was as shown in table T151.

T151 CURRENCY EXPOSURE, AS OF 2023
in millions  USD CNY JPY GBP INR
Exposure (currency) -9,926 5,480 131,502 1,213 89,605
Exposure (EUR at spot rate) -8,971 698 844 1,399 973
Hedges (currency) 3,412 -1,676 -38,737 -361 -14,406
Hedge ratio 34% 31% 29% 30% 16%
Hedging rate 1.09 7.52 145.01 0.89 91.85
             

50% of currency risks from capital expenditure on aircraft are generally hedged immediately after the contract is signed. The hedging level is reviewed and increased, where necessary, if, over the lifetime of the contract, the exchange rate moves significantly above or below that used to calculate the investment. In the last 24 months before payment, the hedging level is increased in half-yearly steps of 10%, reaching 90% by the end. These investment hedges are therefore also accounted for as cash flow hedges. Capital expenditure on aircraft takes place in US dollars and is hedged in euros or in Swiss francs, depending on the functional currency of the Group company making the purchase. There was no exposure in Swiss francs as of the reporting date.

US dollar exposure for capital expenditure as of year-end 2023 was as shown in table T152, broken down by the hedged currency:

T152 USD INVESTMENT EXPOSURE, HEDGED IN EUR    
in millions  2024 2025 2026 2027 2028 2029 2030 2031 2032
Exposure from net capital expenditure (USD) -3,644 -3,385 -2,634 -2,593 -2,113 -1,421 -1,192 -508 -87
Exposure from net capital expenditure (EUR at spot rate) -3,293 -3,060 -2,381 -2,343 -1,909 -1,285 -1,077 -459 -79
Hedges (USD) 3,205 2,541 1,736 1,540 1,085 546 448 119
Hedge ratio 88% 75% 66% 59% 51% 38% 38% 23% 0%
Hedging rate EUR/USD 1.17 1.23 1.25 1.22 1.18 1.17 1.15 1.16 -
                     

The sensitivity analysis in table T153 shows how net profit and equity would have changed had the currencies identified as price risk variables been different from those at the reporting date.

T153 SENSITIVITY ANALYSIS BY CURRENCY
    Effects on earnings after taxes¹⁾ Effects on equity¹⁾
in €m Difference of +10% Difference of -10% Difference of +10% Difference of -10%
USD -239 264 1013 -829
JPY -44 26 -21 17
CHF -29 33 -1 1
GBP 4 -1 -33 27
CNY 4 -5 -17 14
INR 1 -3 -13 10
           
1) All amounts after deferred tax effects; +/– signs relate to net profit and/or equity.

Interest rate risk

The Lufthansa Group generally aims to pay interest on its financial liabilities in EUR. Cross-currency interest rate swaps may be used to hedge financial liabilities denominated in foreign currencies.

Tables T154 and T155 describe the floating/fixed ratio for non-current borrowing as of financial year-end 2023 after taking into consideration interest rate hedging, as well as the distribution of the nominal volume of interest rate hedges. The remaining floating interest rate exposure for non-current borrowing is less than the exposure for floating rate investments. The medium-term aim is for the net exposure, i.e. total exposure less cash invested at floating rates, to be at fixed rates.

T154 INTEREST RATE EXPOSURE AFTER HEDGING
in €m 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Fixed 6,968 6,025 4,481 2,805 1,680 760 243 148 134 5 4
Floating 4,525 3,147 2,645 2,167 1,851 1,514 978 565 149 40 40
Floating/fixed ratio 39% 34% 37% 44% 52% 67% 80% 79% 53% 89% 91%
                         
T155 NOMINAL VOLUME OF INTEREST RATE HEDGES
in €m 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Fixed -3,255 -3,255 -2,190 -1,894 -1,574 -1,355 -1,116 -691 -376 -86
Floating 3,287 3,287 2,235 1,967 1,641 1,420 1,167 717 398 103
                         

The sensitivity analysis in table T156 shows how net profit and equity would have changed had the interest rate identified as a price risk variable been different from those at the reporting date. A symmetric sensitivity of 100 basis points is used given the current interest rate volatility. Stand-alone interest rate derivatives and interest rate derivatives in cash flow hedge accounting have been included. The reason for this is that, in fair value hedge accounting, interest rate derivatives offset the movements in the underlying hedged items.

T156 SENSITIVITY ANALYSIS BY INTEREST RATE
in €m Effects on earnings after taxes ¹⁾ Effects on equity ¹⁾
Interest rate + 100 basis points -14 -17
Interest rate – 100 basis points 14 16
       
1) All amounts after deferred tax effects; +/– signs relate to net profit and/or equity.

Effects of the EU benchmark regulation of global reference interest rates

In terms of the financial instruments used by the Lufthansa Group, the global reform of variable reference interest rates means that the variable reference interest rates used previously for transactions were no longer available as of the reporting date or were calculated using different methods. The former related mainly to financial instruments tied to USD LIBOR, especially floating rate liabilities and hedging instruments. The methodological changes related particularly to EURIBOR.

All the financial instruments concerned were switched to the new reference interest rates; this particularly concerns the SOFR (USD) reference rate. The switches were made on the same terms, with no material delay and maintaining existing hedging relationships. The relevant IT systems were changed accordingly.

Fuel price risk

In the 2023 financial year, fuel costs accounted for 22.1% of the Lufthansa Group’s operating expenses (previous year: 22.6%). Significant changes in fuel prices can therefore have a considerable effect on the Lufthansa Group’s result.

Fuel price risk is limited by the use of crude oil and gas oil hedges. As a rule, up to 4% of the exposure is hedged monthly for up to 24 months by spread options and other combinations of hedges. At the same time, forward hedges were concluded for the price difference between kerosene and crude oil, and between gas oil and crude oil. Executive Board approval may be obtained to extend the hedging period and to increase the monthly hedging volume in order to exploit market opportunities. The target hedging level as of 31 December 2023 is up to 85%.

Table T157 shows the fuel exposure at financial year-end.

T157 FUEL EXPOSURE
    2024 2025
Fuel requirement in 1,000 tonnes 9,842 10,627
Hedging instruments in 1,000 tonnes 7,527 2,949
Hedge ratio in % 77% 28%
Hedging rate USD/bbl 92.72 94.05
         

The sensitivity analysis in table T158 shows how equity would have been affected by changes in the market value of hedging instruments held as of the reporting date had the identified risk variable, namely the fuel price, been different. Since hedge accounting rules mean that changes in the market value of the instruments are only recognised directly in equity without effect on profit and loss, the change in the fuel price of the hedges alone has no effect on earnings.

T158 SENSITIVITY ANALYSIS BY FUEL PRICE
in €m Effects on earnings after taxes1) Effects on equity1)
Fuel price    
+ 10% 253
– 10% -228
     
1) All amounts after deferred tax effects; +/– signs relate to net profit and/or equity.

Market values of the derivative financial instruments used for hedging

Hedging instruments designated in hedging relationships are used to hedge exchange rate, interest rate and fuel price risks as of the reporting date. In the financial year, they changed as shown in table T159.

T159 DERIVATIVE FINANCIAL INSTRUMENTS USED FOR HEDGING AS OF 31 DEC 2023
in €m Positive
market
values
Negative
market
values
Change in fair value of hedging instrument
- designated risk
Change in fair value of hedging instrument
- non-designated risk
Basis adjustment of hedged items OCI -
cash flow
hedge
reserve
OCI -
Cost of
hedging
Ineffective portion of hedges
- designated risk
Ineffective portion of hedges
- non-designated risk
                   
Fair value hedge                  
Interest rate hedges – interest rate swaps 42 - 244 -42 41
Cash flow hedge                  
Fuel hedging – options 164 - 34 5 -142 5 -138 -4
Exchange rate hedging – futures 838 -447 -433 - 59 - 398 11 - 35 -70
Interest rate hedges – interest rate swaps 51 -26 - 52 - 46 -6
Total 1,095 -751 - 522 -201 41 -439 - 127 - 41 - 74
of which current 436 -258              
                     
T159 DERIVATIVE FINANCIAL INSTRUMENTS USED FOR HEDGING AS OF 31 DEC 2022
in €m Positive
market
values
Negative
market
values
Change in fair value of hedging instrument
- designated risk
Change in fair value of hedging instrument
- non-designated risk
Basis adjustment of hedged items OCI -
cash flow
hedge
reserve
OCI -
Cost of
hedging
Ineffective portion of hedges
- designated risk
Ineffective portion of hedges
- non-designated risk
                   
Fair value hedge                  
Interest rate hedges – interest rate swaps 70 - 210 - 234 274 40 0
Cash flow hedge                  
Fuel hedging – options 256 -79 - 111 - 141 - 112 - 131 1 -10
Exchange rate hedging – futures 1,469 - 586 372 54 310 79 62 -25
Interest rate hedges – interest rate swaps 85 -8 25 25 0
Total 1,880 -883 52 -87 274 223 - 52 103 -35
of which current 846 - 489              
                     

The market values stated for financial derivatives correspond to the price at which an independent third party would assume the rights and/or obligations from the financial instrument. The fair values of interest rate derivatives correspond to their respective market values, which are measured using appropriate financial and mathematical methods, such as discounting expected future cash flows. Discounting takes market standard interest rates and the residual term of the respective instruments into account. Forward currency transactions and interest rate swaps are individually discounted to the balance sheet date based on their respective forward rates and the appropriate interest rate curve. The market prices of options used to hedge fuel prices are determined using acknowledged option pricing models.

Depending on the hedged exposure, the Lufthansa Group designates interest rate hedges as both fair value hedges and cash flow hedges and accounts for them accordingly. Interest rate swaps are designated as part of a hedging relationship and are not broken down into individual components. Ineffectiveness in these hedging relationships result largely from different parameters in the hedged item and the hedging instrument and the basis spread in cross currency swaps. Ineffectiveness in fair value hedges and cash flow hedges are recognised and presented as part of the financial result, in other financial items.

Derivatives used in the context of fuel hedging to hedge future kerosene purchases are designated as cash flow hedges. The Lufthansa Group applies the IFRS 9 component approach, using crude oil, based on Brent Crude ICE, as the designated risk component of the hedging instrument. The hedged item is composed of a global mix of crude oil types. The base risk between individual crude oil components in the hedging instrument and the crude oil mix in the hedged item is reduced by rebalancing the volumes that make up the hedged item on a quarterly basis. In 2023, the quarterly rebalancing factors for adjusting the hedged item were as follows: 1.010/1 (Q1), 1.011/0.985 (Q2), 1.012/0.983 (Q3) and 1.012/0.984 (Q4) (crude oil/gas oil). The Lufthansa Group generally uses options and combinations of options to hedge fuel prices. The intrinsic value of the option is designated as the hedging instrument, so that effective changes in the intrinsic values are recognised in other comprehensive income in the cash flow hedge reserve. The time value of an option is not designated as a hedging instrument and effective changes in the time value are therefore recognised as a cost of hedging. Ineffectiveness in fuel price hedges results from the base risk between the crude oil component and the crude oil mix in the component approach. Ineffectiveness in hedges is recognised and presented as part of the financial result, in other financial items.

The Lufthansa Group applies the spot-to-spot method for exchange rate forward transactions designated in cash flow hedges. The spot component of a forward contract is designated as a hedging instrument and effective value changes are recognised in the cash flow hedge reserve. The other effective components of a forward contract, the forward component and the basis spread are presented in a separate OCI component in line with the legal requirements for the cost of hedging. Ineffectiveness in hedging relationships results from changes in the timing of the planned aircraft purchases. Ineffectiveness is presented as part of the financial result, in other financial items (↗ Note 14).

The Lufthansa Group uses the hypothetical derivative method to calculate changes in the value of hedged items designated as being part of a hedging relationship.

T160 DESIGNATED HEDGED ITEMS IN HEDGING RELATIONSHIPS
  2023 2022
in €m Carrying amount of liabilities Change in fair value of hedged items
- designated risk
Change in fair value of hedged items
- non-designated risk
Base adjustment of hedged items from fair value hedges – cumulative Carrying amount of liabilities Change in fair value of hedged items
- designated risk
Change in fair value of hedged items
- non-designated risk
Base adjustment of hedged items from fair value hedges – cumulative
                 
Fair value hedge                
Interest rate hedges – interest rate swaps -4,204 41 295 -4,717 274 194
Cash flow hedge                
Fuel hedging – options -5 138 112 131
Exchange rate hedging – futures 518 -21 -346 -81
Interest rate hedges – interest rate swaps 54 -27
Total -4,204 608 117 295 -4,717 13 50 194
                   
T161 STATEMENT OF EQUITY RECONCILIATION FOR CASH FLOW HEDGES
  2023 2022
in €m 1 Jan 2023 Gains or losses from effective hedging relationships Reclassification to profit or loss Reclassification to acquisition costs of inventories Reclassification to acquisition costs of aircraft As of 31 Dec 2023 As of 1 Jan 2022 Gains or losses from effective hedging relationships Reclassification to profit or loss Reclassification to acquisition costs of inventories Reclassification to acquisition costs of aircraft As of 31 Dec 2022
                         
OCI – cash flow hedge reserve 853 -178 65 12 112 486 711 1,493 161 1,025 165 853
Fuel hedging - options 11 17 12 16 123 913 1,025 11
Exchange rate hedging – futures 840 -188 65 112 475 591 575 161 165 840
Interest rate hedges – interest rate swaps 2 -7 -5 -3 5 2
OCI – cost of hedging 509 -131 378 564 -55 509
Fuel hedging - options -41 -142 -183 94 -135 -41
Exchange rate hedging – futures 550 11 561 470 80 550
Total 1,362 -309 65 12 112 864 1,275 1,438 161 1,025 165 1,362
                           

Derivative financial instruments that do not meet the requirements for applying hedge accounting are measured at fair value through profit or loss. As a rule, these derivatives were originally in an economic hedging relationship with a particular exposure, but the exposure can either not be measured for hedge accounting purposes or no longer exists.

Fair values are exclusively calculated on the basis of recognised financial and mathematical methods, using publicly available market information.

Changes in the market values of derivatives that do not qualify as effective hedging transactions under IFRS 9 can be seen in the income statement and in the overview of other financial items (↗ Note 14).

Liquidity risk

Complex financial planning systems enable Lufthansa to identify its future liquidity position at an early stage. Based on the results of the Group strategy and planning processes, a monthly rolling liquidity plan differentiated by currency is drawn up with a planning horizon of 24 months. This planning method offers an up-to-date picture of anticipated liquidity developments within the Company and corresponding currency effects.

The Lufthansa Group held unused lines of credit as of 31 December 2023 totalling EUR 2,097m (previous year: EUR 2,119m).

The Group takes specific and general measures to safeguard and manage its liquidity to avoid any potential liquidity restrictions that could result from exogenous developments. These include the implementation of monitoring on the basis of detailed, rolling short-term cash plans in order to manage liquidity effectively, and the holding of sufficient funds to cover the current financing requirement. Specific liquidity risks resulting from reimbursements for cancelled flights are also analysed and managed. In addition, liquidity is managed in connection with current orders for goods and services. Transparency is ensured across the Group, including through an early warning system and an escalation process for outstanding receivables, and strict approval requirements apply within the order process.

A maturity analysis for financial liabilities and derivative financial instruments based on undiscounted gross cash flows, including the related interest payments, shows the following projected cash inflows and outflows considered from the reporting date of 31 December 2023. As a result of the hedges used there are generally direct connections between the cash inflows and outflows for the derivative financial instruments shown.

T162 MATURITY ANALYSIS OF LIABILITIES FROM DERIVATIVE FINANCIAL INSTRUMENTS
in €m From fuel derivatives Cash inflow from gross settlement of interest rate and exchange rate derivatives Cash outflow from gross settlement of interest rate and exchange rate derivatives Net
         
1st quarter -3 2,377 -2,486 -112
Up to 1 year ¹⁾ -11 4,150 -4,307 -168
1 – 5 years -3 7,403 -7,538 -138
Later 2,247 -2,290 -43
           
1) Without payments in 1st quarter.
T163 MATURITY ANALYSIS OF LIABILITIES FROM NON-DERIVATIVE FINANCIAL INSTRUMENTS
in €m Outflows
   
1st quarter -5,650
Up to 1 year ¹⁾ -4,063
1 – 5 years -7,960
Later -2,360
     
1) Without payments in 1st quarter.

Credit risk

The sale of passenger travel and freight documents mostly takes place via agencies. These agencies are predominantly connected to national clearing systems for billing passenger and cargo sales. The credit rating of the agencies is reviewed by the responsible clearing systems. Due to the broad diversification, credit risk for the agencies is relatively low worldwide. To further reduce credit risk exposure to the agencies, the Lufthansa Group tracks their payment histories and tries to agree on shorter payment deadlines whenever possible, and with the support of the International Air Transport Association (IATA).

Receivables and liabilities between airlines are offset through bilateral arrangements or via an IATA clearing house, insofar as the contracts underlying the services do not explicitly specify otherwise. Systematic settlement of weekly receivables and liability balances significantly reduces the default risk. Fidelity guarantee insurance also covers partial risks within a certain range. Service contracts occasionally require collateral for miscellaneous transactions. All other contractual relationships are subject to credit rules, which, depending on the type and volume of the contract involved, require collateral, credit ratings/references or historical data from prior dealings, particularly payment history, in order to avoid defaults. Credit risks from the MRO business are monitored and managed via a separate credit risk management system. It comprises the calculation, authorisation and monitoring of customer-specific credit limits and the daily monitoring of payments received and receivables past due.

Counterparty risks in connection with credit card companies are monitored closely and incoming payments are reviewed daily. To reduce risks even further, a permanent analysis process examines whether to further tighten credit terms for some settlement partners. In addition to the monitoring of receivables at the Company or segment level, there is also counterparty monitoring at Group level, with individually assigned limits, in order to identify the accumulation of portfolio risks across the entire Group and take appropriate action where necessary. The maximum credit risk for financial assets from the potential insolvency of customers is their carrying amount.

Besides individual write-downs on receivables if a default event occurs, IFRS 9 requires risk provisions to be recognised for expected losses. The Lufthansa Group’s trade receivables are exposed to external credit risks for which expected losses have already been taken into consideration in accordance with IFRS 9, in addition to individual write-downs. A simplified impairment model based on an impairment matrix is used for the portion of the receivables portfolio that does not consist of credit card receivables but is subject to external credit risks. The portfolio is divided into clusters based on customer groups, regions and days past due. A default matrix is calculated on the basis of historical default events in the Lufthansa Group’s receivables portfolio, which is supplemented to include forward-looking, publicly available insolvency forecasts. This impairment matrix is applied to trade receivables that are exposed to external credit risk and are not credit card receivables. An impairment matrix is also used for trade and other receivables in the MRO segment. It entails dividing the customer portfolio into four risk classes, with a low, medium, high and very high risk of default. Customers are assigned to each category using the MRO segment’s credit risk management system, which is based on fundamental data, market information and payment history. Probabilities of default are derived from historic default events and current market information. Available collateral is taken into account. In addition, the receivables portfolio includes credit card receivables for which the Lufthansa Group is the credit card issuer. Expected losses for these credit card receivables are calculated in a separate model, based on counterparty-specific external ratings and default probabilities. The credit card receivables relate to the AirPlus group and were reclassified as “Assets held for sale”. The Lufthansa Group uses a definition of default of 90 days past due for receivables, which are written off in full if the default event occurs. Exceptions are permitted in justified cases, however.

In table T164, Levels 1 and 2 describe expected credit losses, whereas Level 3 shows individual impairment losses on the basis of actual default events.

T164 STATEMENT OF RISK PROVISIONS 2023
in €m Opening balance risk provision as of 1 Jan 2023 Additions through profit or loss Reversals through profit or loss Utilisation Closing balance risk provision as of 31 Dec 2023 Opening balance gross carrying amount as of 1 Jan 2023 Closing balance gross carrying amount as of 31 Dec 2023
                 
Trade receivables
(simplified approach)
430 35 -54 -77 334 1,888 1,934
of which from expected losses 42 -3 -5 0 34 1,530 1,654
of which from individual loss allowances 388 38 -49 -77 300 358 280
Trade receivables
(credit card receivables)
10 5 -9 -1 5 741 1,050
of which Level 1 7 3 -6 0 4 734 1,036
of which Level 2 0 0 0 0 0 1 7
of which Level 3 3 2 -3 -1 1 6 7
Total 440 40 -63 -78 339 2,629 2,984
                 
T164 STATEMENT OF RISK PROVISIONS 2022
in €m Opening balance risk provision as of 1 Jan 2022 Additions through profit or loss Reversals through profit or loss Utilisation Closing balance risk provision as of 31 Dec 2022 Opening balance gross carrying amount as of 1 Jan 2022 Closing balance gross carrying amount as of 31 Dec 2022
                 
Trade receivables
(simplified approach)
505 66 -45 -96 430 1,951 1,888
of which from expected losses 51 9 -18 0 42 1,453 1,530
of which from individual loss allowances 454 57 -27 -96 388 498 358
Trade receivables
(credit card receivables)
8 4 0 -2 10 458 741
of which Level 1 6 1 0 0 7 450 734
of which Level 2 0 0 0 0 0 0 1
of which Level 3 2 3 0 -2 3 8 6
Total 513 70 -45 -98 440 2,409 2,629
                 

In the reporting year, the Lufthansa Group used the default rates shown in table T165 for each past due category in the impairment matrix for the simplified approach of the impairment model.

T165 IMPAIRMENT MATRIX FOR TRADE RECEIVABLES
      2023 2022
    Not overdue 1-30 days overdue 31-60 days overdue 61-90 days overdue More than 90 days overdue Total Not overdue 1-30 days overdue 31-60 days overdue 61-90 days overdue More than 90 days overdue Total
                           
Default rate % 1.6 1.2 3.7 6.1 9.9 - 2.1 2.1 5.0 5.3 12.4 -
Carrying amounts for trade receivables €m 1,206 318 24 3 103 1,654 1,167 235 20 19 89 1,530
Expected loss €m 19 4 1 10 34 24 5 1 1 11 42
                             

In order to determine expected losses of credit card receivables according to IFRS 9, the off-balance sheet exposure must be considered, in addition to the on-balance sheet exposure. The off-balance sheet exposure describes the portion of a credit card’s unused or available limit. The following overview T166 shows the risk data for the credit card portfolio. Expected losses are calculated at the level of the individual credit card. The variables average default probability and average loss thus relate to the individual credit card.

T166 CONCENTRATION OF CREDIT RISK FROM CREDIT CARD RECEIVABLES
Internal credit rating Probability of default according to external credit rating Average probability of default Average expected loss
per concerned credit card in €
Exposure
Level 1 impairment model
in €m
Exposure
Level 2 impairment model
in €m
Exposure
Level 3 impairment model
in €m
On-balance sheet exposure            
Low risk ≤ 2% 0.0% 1 1,035 6
Medium risk > 2.0% to ≤ 6.5% 4.0% 290
High risk > 6.5% 73.1% 2,659 7
Total       1,036 7 7
               
Off-balance sheet exposure            
Low risk ≤ 2% 0.0% 2 8,566 302
Medium risk > 2.0% to ≤ 6.5% 4.0% 162 3
High risk > 6.5% 73.1% 18
Total       8,569 321
               

Securities representing debt are rated as shown in table T167 (Standard & Poor’s).

T167 SECURITIES RATINGS – DEBT INSTRUMENTS
in €m  
   
AAA 210
AA + 32
AA 11
AA – 90
A + 85
A 131
A – 258
BBB + 115
BBB 122
Below BBB or unrated 102
Total 1,156
     

The credit risk for derivative financial instruments and securities held at fair value through or without effect on profit and loss is the risk that a counterparty defaults. The maximum credit risk from these instruments is their carrying amount. The counterparty default risk for financial market transactions is limited by defining a maximum risk, taking the credit score given by recognised rating agencies into account.

47. Contingencies and events after the reporting period
T168 CONTINGENT LIABILITIES
in €m 31 Dec 2023 31 Dec 2022
     
From guarantees, bills of exchange and cheque guarantees 2,038 1,446
From warranty contracts 199 249
From providing collateral for third-party liabilities 19 19
  2,256 1,714
       

An amount of EUR 3m (previous year: EUR 3m) within guarantees relates to collateral furnished for joint ventures. Warranty agreements included EUR 160m (previous year: EUR 178m) in contingent liabilities towards creditors of joint ventures. Liabilities under collateral agreements included contingent liabilities of EUR 3m (previous year: EUR 3m) towards creditors of joint ventures. A total of EUR 1,876m (previous year: EUR 1,467m) relates to joint and several guarantees and warranties. This amount is offset by compensatory claims against the co-debtors for EUR 1,823m (previous year: EUR 1,422m). Insofar as annual financial statements have yet to be published, these figures are preliminary.

Otherwise, several provisions for other risks could not be made because an outflow of resources was not sufficiently probable. The potential financial effect of these provisions on the result would have been EUR 49m (previous year: EUR 65m).

Receivables of EUR 119m (previous year: EUR 53m) in connection with legal disputes were not recognised as of 31 December 2023 because the inflow of economic benefits depends on the outcome of the court proceedings.

Legal risks

The Lufthansa Group is exposed to a number of legal risks in the course of its normal business. Based on current knowledge, the assumption is that these will not have any material, lasting effects on the net assets, financial and earnings position, beyond those for which provisions for litigation risks have been created (↗ Note 37).

Legal disputes and other claims made against the Group are always subject to uncertainty, however. Management estimates of these risks may also change over time. The actual outcome of these legal disputes may differ from earlier management estimates, which could have significant effects on the net assets, financial and earnings position and the reputation of our Company.

Due to the existing uncertainties described below, we cannot make an assessment of the amount of the respective contingent liabilities or of the group of contingent liabilities. The legal disputes that these statements refer to include:

Risk of successful civil claims for damages in ongoing antitrust proceedings

Various cargo airlines, including Lufthansa Cargo AG and Swiss International Air Lines AG, were involved in a cargo cartel in the period between December 1999 and February 2006. Deutsche Lufthansa AG, Lufthansa Cargo AG and Swiss International Air Lines AG are at risk of civil claims for damages in Norway, Israel, Korea and the Netherlands. The lawsuits have been brought by both direct and indirect customers and are addressed to the airlines as co-debtors.

At present, it is not possible to give a concrete assessment of the outcome of the lawsuits still pending or of the number and amount of any other claims. When evaluating the risk, it should nonetheless be borne in mind that the European Commission’s decision on the cargo cartel, which the claimants in the civil lawsuits refer to, among others, is still not legally binding. Following the annulment of this 2010 decision by means of judgements by the European Court of Justice (ECJ) in December 2015, the European Commission sent revised penalty notices in March 2017 in which the content was the same but the reasoning had been altered. The airlines concerned, including Lufthansa Group airlines, again contested them. The objections have since been overruled and the companies have appealed to the European Court of Justice, with the result that the penalty notices are still not effective.

Moreover, an expert economic opinion commissioned by Lufthansa Cargo AG and Swiss International Air Lines AG has come to the conclusion that the cartel did not inflict any actual damage on customers. Even if there were damages (i.e. allegedly higher cartel prices), the court would have to examine whether the claimants passed them on to their own customers (in the case of freight forwarders) or whether they were passed on to the claimants (in the case of end customers). Nonetheless, significant effects on the net assets, financial and earnings position of the Group cannot be ruled out if it should lose any of these legal proceedings.

Legal action by Ryanair against the European Commission’s decision on state aid

Ryanair DAC and others have appealed to the General Court (of the European Court of Justice) against the decisions by the European Commission approving stabilisation measures for companies in the Lufthansa Group. Stabilisation measures of around EUR 7.6bn in total are affected for Deutsche Lufthansa AG, Austrian Airlines AG and Brussels Airlines SA/NV. The lawsuit relating to the state aid for Austrian Airlines and Brussels Airlines has since been dismissed in the first instance. This means that the aid for Brussels Airlines is now definitively lawful, but Ryanair has appealed to the European Court of Justice against the ruling to the extent that it concerns Austrian Airlines. The lawsuit against the state aid for Deutsche Lufthansa AG was upheld in May 2023. Lufthansa lodged an appeal against the ruling, but the appeal does not have suspensive effect. It is not clear what the consequences would be if the state aid is ruled to be null and void, because the aid has already been repaid and the Federal Republic of Germany has sold on the open market the equity it received in exchange. Potential indirect consequences include the demand for clawback interest for the period between the allocation and the repayment of the stabilisation funds, as well as the imposition of conditions attached to a new state aid decision. At the time this report was prepared, it was not possible to say what further steps the European Commission will take in its response to the judgment by the European General Court. Deutsche Lufthansa AG expects the European Commission to initiate a formal examination procedure, as it has done in similar cases.

Covenants in connection with the funds granted by the Economic Stabilisation Fund

As well as information and auditing rights for the Economic Stabilisation Fund, the framework agreement with the Economic Stabilisation Fund, which has since been terminated, provided for extensive obligations for the Lufthansa Group including the ban on dividend payments and the ban on cross-subsidising Lufthansa Group companies which were already in difficulty within the meaning of EU Regulation No. 651/2014 on 31 December 2019. Possible differences of opinion between the Lufthansa Group and the European Commission about the applicability of these obligations could represent a potential risk if the European Commission issues a new decision approving the stabilisation, asserting its position and possibly adapting it in line with the ECJ ruling.

This disagreement particularly relates to the ban on dividend payments. The Lufthansa Group has received preliminary statements from departments of the European Commission that are not consistent with the Group’s line of argument regarding the inapplicability of the ban to certain companies. In this context, provisions of EUR 55m have been recognised in the 2023 consolidated financial statements, in particular for distributions by equity investments to external shareholders. Deutsche Lufthansa AG assumes, based on its preliminary statements, that if the European Commission issues a new approval decision it will continue to see the payment of dividends as a breach of the aforementioned obligation, meaning that it could demand payment of the amount mentioned above by the Company in a formal decision. The decision by the European Court of Justice declaring the state aid notice to be null and void will delay the proceedings.

Based on the Group’s line of argument and the assessment of statements to the contrary made by the departments of the European Commission, the Lufthansa Group believes there is an overwhelming probability, in respect of almost all dividend payments, that the accusation made by the European Commission, namely that the aforementioned obligation has been breached, would not stand up to a judicial review. A possible decision reversing the payment obligation would only be made at a later date. Since, however, it is impossible to assume the almost complete certainty of a court ruling in favour of the Company, as would be required in order to recognise a reimbursement claim in accordance with IAS 37, the aforementioned provision has been recognised for the probable payment obligation in prior years and will be maintained in view of the continuing uncertainty.

No reliable statements can be made at the present time on the outcome of the discussions about differences of opinion regarding the “ban on cross-subsidising” obligation, partly because the state aid notice has been ruled to be null and void. Further significant financial risks for the Company due to ultimately determined violations of agreed obligations therefore still cannot be ruled out.

Tax risks

Tax risks exist largely because of differences in legal opinions between the German tax authorities and the Company. In tax audits for financial years 2001 to 2018, the tax authorities came to a number of different conclusions to those on which the Company had based its tax returns, relating, in particular, to partial write-downs on shareholder loans, the treatment of various lease structures, the acquisition of a foreign subsidiary, and the recognition and measurement of certain provisions and assets. The Lufthansa Group has appealed against the resulting tax assessments. Without abandoning its legal position, almost all the disputed matters were settled in the past by paying the back taxes demanded by the authorities. The Federal Finance Court adopted a different position on partial write-downs in 2019, which led to a more negative assessment of the current proceedings. Further court decisions in 2021, however, resulted in more adjustments to this changed case law. Based on the current assessment, there is now a chance that deductibility will be recognised, at least for partial amounts. No final decision on this matter has yet been taken. To the extent that success in the disputed points is considered to be more likely than not, the corresponding receivables from the tax authorities have been recognised in accordance with IFRIC 23. An oral comment by the tax authorities in the course of the current tax audit queried the taxation of certain foreign income in accordance with the Foreign Tax Act (Außensteuergesetz: AStG), raising additional tax risks in the previous year, although the Company continues to assume that the previous tax treatment is correct. Appropriate provisions have been created for other potentially disputed aspects to the extent that a claim is likely to be made. No provisions have been created for matters that the Company believes are more likely than not to result in a decision in its favour. They could give rise to back payments of around EUR 400m in total (previous year: EUR 450m). The assessment of the amount is subject to uncertainty.

Events after the reporting period

The rating agency Moody’s lifted its rating for Deutsche Lufthansa AG from Ba1 to the investment grade level Baa3 on 18 January 2024. According to Moody’s, the upgrade was based on the positive trend in operating profitability at the Lufthansa Group, which had improved significantly in 2023.

The upgrade by Moody’s means that Deutsche Lufthansa AG is again rated investment grade by all the leading rating agencies.

The Supervisory Board of Deutsche Lufthansa AG voted to carry out a wide-ranging reorganisation of the Executive Board at its meeting on 22 February 2024. The Executive Board is to be reduced from six to five members and responsibilities redistributed.

Christina Foerster, Harry Hohmeister and Detlef Kayser will leave the Executive Board as of 30 June 2024, and Remco Steenbergen will leave the Executive Board at the close of 7 May 2024, the date of the Annual General Meeting.

New members Grazia Vittadini and Dieter Vranckx will be appointed to the Executive Board as of 1 July 2024.

Grazia Vittadini, previously at Rolls-Royce Holdings plc, London, as Chief Technology Officer and Member of the Executive Team, most recently active as a special consultant, will lead the MRO and IT function as Chief Technology Officer, which also includes responsibility for sustainability. Her contract will run for three years.

Dieter Vranckx, previously CEO of SWISS International Airlines, becomes the Executive Board member for Global Markets and Commercial Hub Management. His contract will also run for three years. The areas of Customer Experience and Group Brand Management, which were previously part of Brand Management & Sustainability, are now also his responsibility.

A new candidate is to be found for the position of Chief Financial Officer. Until the position is filled, Michael Niggemann will lead the finance function provisionally in addition to his responsibility on the Executive Board for Human Resources, Logistics and Non-Hub Traffic, (previously Human Resources and Infrastructure).

48. Other financial obligations

As of 31 December 2023, there were order commitments of EUR 20.5bn (previous year: EUR 16.2bn) for capital expenditure on property, plant and equipment, including repairable spare parts, and for intangible assets. There were also capital and shareholder loan commitments of EUR 520m towards equity investments (previous year: EUR 170m), of which EUR 512m (previous year: EUR 162m) relate to joint ventures.

In addition, as of 31 December 2023, payment obligations under lease agreements for which the leased items had not yet been received are as follows:

T169 PAYMENT OBLIGATIONS FOR RIGHT-OF-USE ASSETS NOT YET RECEIVED
in €m 31 Dec 2023 31 Dec 2022
     
Lease payments 2024 (previous year: 2023) 13
Lease payments 2025 to 2028 (previous year: 2024 to 2027) 34 57
Lease payments after 2028 (previous year: 2027) 121 16
Total 155 86
       
49. Auditors’ fees

The fees paid to the auditors in the financial year and charged to expenses in accordance with Section 314 Paragraph 1 No. 9 HGB are made up as follows:

T170 AUDITORS’ FEES
in €m 2023 2022
     
Audit services 6.5 4.7
Other certification services 0.4 0.7
Other services 0.6 2.5
Total 7.5 7.9
       

The audit services mainly consist of fees for auditing the annual and consolidated financial statements of Deutsche Lufthansa AG and those of its consolidated subsidiaries, as well as fees for the review of the half-yearly financial statements. Expenses for other assurance services were incurred primarily in connection with fundraising activities. Other services relate mainly to services in the course of the disposal of the LSG group.

The following fees paid to the global EY group, especially abroad, were additionally recognised as expenses:

T171 ADDITIONAL AUDITORS’ FEES
in €m 2023 2022
     
Audit services 2.1 2.7
Other certification services
Other services 0.1
Total 2.2 2.7
       

The auditor at EY GmbH & Co. KG Wirtschaftsprüfungsgesellschaft responsible for the Lufthansa Group is Jörg Bösser. He held this position for the second time in financial year 2023.

Lufthansa Group Annual Report 2023