General disclosures

1. Company information

The Lufthansa Group is a global aviation group. In the 2024 financial year, its subsidiaries and investees were organised into three business segments: Passenger Airlines, Logistics and MRO.

Deutsche Lufthansa AG has its head office in Cologne, Germany, and is filed in the Commercial Register of Cologne District Court under HRB 2168.

The declaration on the German Corporate Governance Code required by Section 161 of the German Stock Corporation Act (AktG) was issued and made available to shareholders online at www.lufthansagroup.com/declaration-of-compliance.

The consolidated financial statements of Deutsche Lufthansa AG, Cologne, and its subsidiaries were prepared in accordance with the IFRS accounting standards (IFRS) issued by the International Accounting Standards Board (IASB) which are applicable in the European Union (EU).

The commercial law provisions of Section 315e Paragraph 1 of the German Commercial Code (HGB) have also been applied. All IFRS accounting standards issued by the IASB and in effect at the time these consolidated financial statements were prepared and applied by Deutsche Lufthansa AG have been endorsed by the European Commission for application in the EU. The consolidated financial statements of Deutsche Lufthansa AG are prepared in millions of euros. The financial year is the calendar year.

Due to the tendency observed over recent years of a change in the usage pattern of non-pool material from a durable good to a consumable good, the accounting method for these materials was adjusted as of 31 December 2024. As a result, these materials have been reclassified from non-current assets to current inventories. The continual expansion of business with non-Group customers which is currently underway and expected to continue over the next few years, the related increase in trade in non-pool materials and changes to technical requirements mean that the Group generally no longer retains most of these materials on a long-term basis; it is therefore more appropriate to report them under inventories. Repairs are still carried out as before where they make economic sense. This adjustment has only affected the presentation in the primary financial statements. (↗ Notes 20, 26 and 44). Since the valuation method is unchanged, this has not had any impact on earnings. The figures for the previous year for the affected items have been adjusted accordingly. Otherwise, the accounting policies applied in the previous year have been retained. The first-time application from 1 January 2024 of the mandatory accounting standards, clarifications and interpretations either had no effect or no material effect on the presentation of net assets, financial and earnings position, or on earnings per share.

During the reporting period, the companies of the AirPlus group were deconsolidated following their sale to SEB Kort Bank AB. No further significant changes to the group of consolidated companies occurred.

Taking into account corporate planning and the resultant liquidity planning, the Company’s Executive Board considers the Group’s liquidity to be secure for the next 18 months. In the opinion of the management, the uncertainties in connection with the public and political debate on climate protection pose no threat to this forecast either. The consolidated financial statements have therefore been prepared on a going concern basis.

On 24 February 2025, the Executive Board of Deutsche Lufthansa AG prepared the 2024 consolidated financial statements, presented them to the Supervisory Board for review and approval and released them for publication.

2. New IFRS accounting standards and summary of significant accounting policies

IFRS accounting standards and interpretations (IFRIC) to be applied for the first time in the financial year and amendments to standards and interpretations

Amendments to IFRS 16, Lease Liability in a Sale and Leaseback

The IASB published amendments to IFRS 16 in September 2022. The amendments mean that the seller/lessee recognises a lease liability from the leaseback obligation under IFRS 16 on the sale date, even if all the lease payments are variable and do not depend on an index or rate. No gain or loss is recognised on subsequent measurement of the right-of-use asset retained by the seller/lessee. Subsequent measurement of the right-of-use asset from the leaseback obligation is carried out according to the general rules of IFRS 16.29-35. The amendments are applicable retrospectively for financial years beginning on or after 1 January 2024.

Amendments to IAS 1, Classification of Liabilities as Current or Non-current

In October 2022, the IASB published amendments to IAS 1, Presentation of Financial Statements, to clarify the guidance for classifying liabilities as current or non-current. The amendments clarify that liabilities are to be classified as non-current if, on the reporting date, the reporting entity has the right to defer settlement of the liability for at least twelve months. The assessment of this right depends on the circumstances at the end of the reporting period. Covenants to be met in future are not considered. The amendments are applicable retrospectively for financial years beginning on or after 1 January 2024.

Amendments to IAS 7 and IFRS 7: Supplier Finance Arrangements

In May 2023, the IASB published amendments to IAS 7 and IFRS 7 to clarify the features of supplier finance arrangements and require additional disclosures on such arrangements. The disclosure requirements in the amendments are intended to help the users of financial statements understand the effects of supplier finance arrangements on the entity’s liabilities, cash flows and liquidity risk.

The first-time application from 1 January 2024 of the mandatory accounting standards, clarifications and interpretations either had no effect or no material effect on the presentation of net assets, financial and earnings position, or on earnings per share.

Published, but not yet mandatorily applicable IFRS accounting standards and interpretations (IFRIC) and amendments to standards and interpretations

The following standards and amendments have already been endorsed by the European Union but are only mandatory in respect of financial statements after 31 December 2024:

Amendment to IAS 21, Lack of Exchangeability

The Lufthansa Group does not expect this amendment to have any material effect on its consolidated financial statements.

The IASB has issued the following additional amendments to IFRS accounting standards which are not yet mandatorily applicable for the 2024 financial year and which have not yet been endorsed by the EU:

IFRS 18, Presentation and Disclosure in Financial Statements

On 9 April 2024, the IASB published its new IFRS 18 accounting standard on the presentation of financial statements and related disclosures. The key changes relate to:

• the structure of the income statement,
• required disclosures within the financial statements for certain profit or loss performance measures that are also reported outside an entity’s financial statements (“management-defined performance measures”, MPMs),
• the use of operating profit or loss as the starting point for the calculation of cash flows from operating activities in the cash flow statement and
• enhanced principles on aggregation and disaggregation which apply to the primary financial statements and the notes in general.

While IFRS 18 will replace IAS 1, many of the other existing principles in IAS 1 are retained in IFRS 18. IFRS 18 will not affect the recognition or measurement of items in the financial statements. However, due to a new income statement structure, it could change what an entity reports as its operating profit or loss.

The Group is currently evaluating the potential impacts of the new IFRS 18 standard, particularly in relation to the structure of its consolidated income statement, its cash flow statement and the additional disclosure requirements for MPMs.

Currently, the additional new or amended IFRS accounting standards outlined above are not considered to have any effect at all, or any material effect, on the presentation of the net assets, financial and earnings position.

The Lufthansa Group has not voluntarily applied any of the new or amended regulations mentioned above before their binding date of application. Amendments to accounting policies as a result of revised and new standards will be applied retrospectively, unless provided otherwise for a specific standard. In this case, the income statement for the previous year and the opening statement of financial position for the comparable period will be adjusted as if the new accounting policies had always been applied. This is subject to the adoption of these standards by the EU.

Summary of significant accounting policies

The companies included in the consolidated financial statements apply uniform accounting policies to prepare their financial statements.

The application of the accounting policies prescribed by the IFRS accounting standards requires making a large number of estimates and assumptions with regard to the future. Naturally, these may not coincide with actual future conditions. However, all of these estimates and assumptions are reviewed continually and based on either past experience and/or expectations of future events that seem reasonable in the circumstances on the basis of sound business judgement. Estimates and assumptions of material importance in determining the carrying amounts for assets and liabilities are explained in the following description of the accounting policies applied to material items of the statement of financial position.

The uncertainties resulting from the crises are vital for the general assessment of the Company’s status as a going concern, but also for specific accounting judgements and estimates. Current global developments in the area of security policy, including the Russian war of aggression against Ukraine, the conflict between Israel, Hamas and Hezbollah, various conflicts in Africa, continuing tensions between China and Taiwan and international trade conflicts as well as resulting effects on international economic relations represent risks to future business development. The same applies to activities and developments related to climate change mitigation. Such geopolitical uncertainties and the economic consequences therefore present a material risk to the performance of the world economy, the entire aviation industry and the Lufthansa Group. This may be reflected in unfavourable supply scenarios on the procurement side and / or changes in demand on the sales side, along with associated adverse price trends. The main assumptions and estimates were therefore based on the Group’s liquidity and profit forecasts. Critical accounting areas that may be affected most severely by the ongoing uncertainty stemming from the crises mentioned above are:

• carrying amounts of goodwill (↗ Note 17) and equity investments (↗ Note 23), which depend to a large degree on achieving the planned earnings,
• carrying amounts for the aircraft (↗ Note 19), which particularly depend on profitable fleet operations.
• In view of the current uncertainties, measurement of the carrying amount for deferred tax assets (↗ Note 14), particularly on the carryforward of unused tax losses and unused tax credits, took the longer-term opportunities for using them into account.
• Accounting for obligations under customer loyalty schemes and unused flight documents (↗ Note 40) also depends on how customers redeem miles or use tickets. Related estimates are subject to uncertainty and significant in terms of the measurement of miles accounts and the estimate of amounts expected from unused flight documents and miles.

The aforementioned accounting areas could also be affected by declines in demand for air travel or higher costs due to climate-related factors. In particular, there is uncertainty about the extent to which regulatory efforts in connection with discussions about climate protection could lead to higher costs for the Lufthansa Group or the extent to which the Group can pass on higher costs to the customer. Public debate is currently focused on carbon emissions. In this context, corporate planning has factored in binding costs for emissions trading and sustainable aviation fuel, which were thus included when applying IAS 36 and in the impairment considerations in relation to deferred tax assets. Other core elements of the drive to reduce carbon emissions include the planned modernisation of the fleet and opportunities to buy carbon offsets when booking tickets. In connection with the planning mentioned above, the assumption is that sufficient quantities of sustainable aviation fuel will be available and that a certain proportion of customers will make use of carbon offsets. The Lufthansa Group does not currently see any climate-related indications of material changes in the expected useful lives of aircraft and reserve engines. However, the debate about the influence of aviation on climate change could have a negative long-term impact on air travel and thus on planned revenue. To reflect these uncertainties, no explicit assumptions have been made in the corporate planning. Over the medium to long term, however, impairment testing did not consider further market growth assumed by the industry association IATA (forecast up to 2034; as of September 2024); only the effects of inflation were included.

The measurement method applied to the consolidated financial statements is based on historical cost. Where IFRS accounting standards stipulate that other methods of measurement should be applied, these are used instead and referred to specifically in the following comments on measuring assets and liabilities.

Recognition of income and expenses

Revenue and other operating income are recognised when the service has been provided.

Passenger transport and ancillary services

The Lufthansa Group sells flight tickets and related ancillary services primarily via agents, its own websites or other airlines in the case of interlining. Payments are received by the Lufthansa Group via credit card billing companies, agents or other airlines, generally before the corresponding service is provided. Receivables from the sale of flight tickets and related ancillary services are exclusively amounts payable by the business partners mentioned above.

The Lufthansa Group initially recognises all ticket sales as liabilities from unused flight documents. These are presented as contract liabilities in accordance with IFRS 15. Depending on the terms of the selected fare, the contract liabilities reflect a range of possibilities for refunding services that have not yet been provided. Liabilities include both deferred income for future flights and ancillary services recognised as revenue when the flight documents are used, plus the liabilities for award miles credited to the passenger when the flight documents are used. The Lufthansa Group allocates the transaction price to all of the performance obligations identified on the flight ticket on the basis of individual transaction prices. The individual transaction prices for flight segments are determined under IATA rules, which allocate the total price payable to individual flight segments using what is known as a prorate calculation. The amounts determined in this way correspond to the relative standalone selling price within the meaning of IFRS 15. The standalone selling prices for ancillary services not included in the fare are directly observable prices within the meaning of IFRS 15. It takes 2.5 months on average (previous year: 2.3 months) for a flight coupon to be realised. Two years after the date of a flight at the latest, flight tickets lose their validity.

The Lufthansa Group reduces liabilities from unused flight documents and recognises revenue for each flight segment (including related ancillary revenue) when the respective document is used. In the case of tickets covering more than one flight segment, each flight segment is classified as a distinct performance obligation: each one is independent and can be distinguished in the context of the contract.

Interlining means that the passenger is carried by another airline for one (or more) flight segment(s). Only the commission paid by the other airline is recognised as revenue for these flight segments, since the Lufthansa Group acts solely as an agent under these performance obligations. If passengers with tickets sold by other airlines are carried partly or fully by the Lufthansa Group, the Lufthansa Group shows the pro rata ticket income received from the other airlines less the commission retained by the ticketing airline as revenue.

Generally speaking, the Lufthansa Group does not expect to receive any amount if a flight document is not used (or does not expect the amount to be material). For this reason, it does not anticipate the possibility that documents for a flight segment will not be used. If flight documents are not used, the expected amount is only recognised as revenue where the probability that the passengers will exercise their remaining rights is low, and no later than when the expiry of flight documents is certain and known. This is done on the basis of defined passenger groups.

Revenue for award miles is recognised at the point at which the goods and services purchased with the award miles are transferred. IFRS 15 requires that income from the expiry of miles is recognised in parallel with revenue from performance obligations that do not expire. A period of three years is therefore assumed for revenue recognition; as a rule, the revenue from miles expected to expire is recognised on a straight-line basis over this time. In the period between 2020 and 2022, changes in how passengers redeemed their miles in prior years and the restricted opportunities to use them for flights during the coronavirus pandemic meant that the realisation rate was adjusted accordingly.

Logistics

Lufthansa Cargo markets the freight capacities of passenger aircraft at Lufthansa Airlines, Austrian Airlines, Eurowings and Brussels Airlines, and operates a fleet of cargo aircraft. In addition to income from standard cargo services, Lufthansa Cargo generates part of its revenue from ancillary services that are closely connected to the freight service.

In its cargo business, the Lufthansa Group has identified the entire freight service as a distinct performance obligation. The contracting party receives the benefit of the transport service with each transport segment that is completed by the airline. In this case, the customer takes control of the Company’s output while the carrier provides its service. The corresponding cargo revenue is therefore recognised at the prorated value when the documents for each individual freight segment are used.

Lufthansa Cargo typically receives the consideration for performing its service once the transport has been carried out.

MRO

The main distinct performance obligations in the MRO business segment are the provision of maintenance and aircraft and engine overhaul services, for which revenue is recognised over time since the condition of IFRS 15.35 (b) is generally met. Profit for these performance obligations is recognised on the basis of an input-oriented percentage of completion method, based on the services rendered as a proportion of the total volume of the customer order. Contract assets and contract liabilities are therefore both recognised. In general, the revenue is realised taking into consideration the margin shown in the business plans, which are updated annually.

In some cases, contracts in the MRO segment make it necessary not to recognise distinct services as individual performance obligations but rather as a series, as described in IFRS 15.22 (b).

Access to Lufthansa Technik’s pool of spare parts and components is another key performance obligation, which is satisfied either over time or at a specific point in time, depending on the contract model agreed. Furthermore, some of the contracts include standby obligations that require the recognition of revenue over time. This is particularly the case with component contracts in which remuneration is paid in the form of a fixed rate per hour of flying time. For such contracts, the percentage of completion is primarily measured on the basis of hours invoiced to the customer each month.

A significant portion of the contracts in the MRO business segment run for several years and therefore have price adjustment clauses. These are only considered in the transaction price where an event (such as a wage increase) triggers a price adjustment.

Incremental costs of obtaining a customer contract will only be capitalised if the contract has a term of more than one year.

Further disclosures on the Lufthansa Group’s revenue from contracts with customers can be found in ↗ Notes 3 and 4.

Operating expenses are recognised when the product or service is used or the expense arises. Provisions for warranties are generally accounted for when the corresponding revenue is recognised, while provisions for onerous contracts are generally set up when they are identified.

Interest income and expenses are accrued in the appropriate period. Dividends from shareholdings not accounted for using the equity method are recognised when a legal claim to them arises.

Initial consolidation and goodwill

The initial consolidation of Group companies takes place using the purchase method. This involves allocating the acquisition costs to the acquired company’s assets, liabilities and contingent liabilities, identified and measured according to IFRS 3 rules as of the date of acquisition (purchase price allocation). The proportion of fair value of assets and liabilities not acquired is shown under non-controlling interests. Acquisition costs are recognised as expenses in the periods in which they occur.

Any excess of cost over the value of equity acquired is capitalised as goodwill. If the value of the acquirer’s interest in the shareholders’ equity exceeds the purchase price paid by the acquiring company, the difference is recognised immediately in profit or loss.

Differences from non-controlling interests acquired after control has been gained are set off directly against equity.

Goodwill is not amortised, and tested at least annually for impairment. Impairment testing of goodwill is carried out using recognised discounted cash flow methods. This is done on the basis of expected future cash flows from the latest business plan, which are extrapolated on the basis of long-term revenue growth rates and assumptions with regard to margin development, and are discounted for the capital costs of the business unit. Tests are performed at the level of the cash-generating unit (CGU). For the individual assumptions on which impairment tests were based in the 2024 financial year, see ↗ Note 17.

Additional impairment tests are also applied during the course of the year if events give reason to believe that goodwill could be permanently impaired.

Once an impairment loss has been recognised on goodwill, it will not be reversed in subsequent periods.

Notwithstanding the principles described above, Group companies with no material impact on the Lufthansa Group’s net assets, financial and earnings position are not consolidated, but rather recognised in the consolidated financial statements at cost less any impairments.

Currency translation and consolidation methods

The financial statements of the foreign Group companies are prepared in the relevant functional currency and translated into euros before consolidation. The functional currency is usually the currency of the country in which the company concerned is located. Occasionally, the functional currency will differ from the national currency. Assets and liabilities are translated at the middle rates on the reporting date. The expense and income recognised in the consolidated income statement and the consolidated statement of comprehensive income are translated at the average exchange rates for the year. Any translation differences are recognised directly in equity without effect on profit and loss, and are only recognised in profit or loss where control is lost or the equity investment is disposed of.

Goodwill arising for foreign subsidiaries as a result of the capital consolidation is held in the functional currency of the acquired company and translated at the middle rates on the reporting date.

The flows in the consolidated cash flow statement are translated at average exchange rates for the year, while cash and cash equivalents are translated at the middle rate on the reporting date.

However, transaction differences are recognised in profit or loss. These differences arise in the financial statements of consolidated companies from the measurement of assets and liabilities denominated in a currency other than the company’s functional currency. Exchange rate differences here are included in revenue (exchange rate gains and losses on trade receivables) and in other operating income (other exchange rate gains) or other operating expenses (other exchange rate losses). Exchange rate effects resulting from the measurement of non-current foreign-currency receivables and financial liabilities are recognised in the financial result.

Translation differences relating to items whose fair value changes are recognised in equity are also recognised in equity without effect on profit and loss.

The most important exchange rates used in the consolidated financial statements have developed in relation to the euro as follows:

The effects of intra-Group transactions are completely eliminated in the course of consolidation. Receivables and liabilities between consolidated companies are offset against one another, with intra-Group provisions reversed through profit or loss. Intra-Group profits and losses in non-current assets and inventories are eliminated – generally in connection with the internal resale of aircraft and maintenance inspections. Intra-Group income is set off against the corresponding expenses. Tax accruals and deferrals are made as required by IAS 12 for temporary differences arising from consolidation.

Other intangible assets (except goodwill)

Acquired intangible assets are shown at cost, while internally generated intangible assets from which the Lufthansa Group expects to derive future benefit and which can be measured reliably are capitalised at cost of production and amortised regularly using the straight-line method over an estimated useful life. The cost of production includes all costs directly attributable to the production process, including borrowing costs as required under IAS 23, as well as appropriate portions of production-related overheads.

Intangible assets with an indefinite useful life are not amortised but, like goodwill, are subjected to regular annual impairment tests. These essentially include brands and resellable take-off and landing rights (slots) acquired individually or as part of company acquisitions. The latter are generally allotted for an indefinite period, provided they are used regularly.

Property, plant and equipment

Tangible assets used in business operations for longer than one year are valued at their acquisition or production cost less regular straight-line depreciation. The cost of production includes all costs directly attributable to the manufacturing process as well as appropriate portions of production-related overheads. Borrowing costs closely linked to the financing of the purchase or production of a qualifying asset are also capitalised.

Key components of property, plant and equipment that have different useful lives are recognised and depreciated separately. Seats and in-flight entertainment systems installed in commercial aircraft are recognised separately. If costs are incurred in connection with regular extensive maintenance work (e.g. overhauling aircraft and major engine overhauls), these costs are recognised as a separate component provided they meet the criteria for recognition. The useful lives and remaining carrying amounts of assets are reviewed regularly and adjusted as necessary in line with the forecast.

The following useful lives and residual carrying amounts are applied throughout the Group:

Buildings, fixtures and fittings on rented premises depreciate according to the terms of the leases or over a shorter useful life.

Assets acquired second-hand are depreciated over their expected remaining useful life.

When assets are sold or scrapped, the difference between the net proceeds and the net carrying amount of the assets is recognised as a gain or loss in other operating income or expenses, respectively.

In addition to the impairment tests for goodwill, slots and brands, individual items of property, plant and equipment and intangible assets are also tested for impairment if they are no longer intended for future use, either because they are damaged, retired or earmarked for sale. In this case, the assets are measured individually in line with the applicable standard (impairment to scrap value, or disposal proceeds less costs to sell). When commercial aircraft are held for service in the Lufthansa Group fleet and there is no immediate intention to sell them, they are combined with the assets of the respective operating unit for the purposes of impairment testing. The smallest separable CGU in the passenger business is the airlines’ flight operations (e.g. Lufthansa Airlines, SWISS). For the MRO segment, it is the entire MRO operation because of the alliance effects between the MRO business units. The Logistics segment also comprises a single CGU.

Impairment losses on intangible assets and property, plant and equipment

The Lufthansa Group tests intangible assets and property, plant and equipment for impairment where events or changes in circumstances indicate that their carrying amounts exceed their “recoverable amount”. The recoverable amount is defined as the higher of an asset’s fair value less costs to sell and the present value of the estimated net future cash flows from continued use of the asset (value in use). Fair value less costs to sell is derived from recently observed market transactions (insofar as they are available) or, in the case of aircraft, from general external information on current market prices. If the recoverable amount for an asset is less than its carrying amount, impairment losses are recognised on the reporting date in addition to depreciation and amortisation.

If it is impossible to forecast an expected cash inflow for an individual asset, the cash inflow will be estimated for the next larger group of assets to which cash inflows largely independent of the cash inflows of other assets or groups of assets can be attributed. The calculated stream of cash flows is discounted at an interest rate reflecting the risk involved, with the recoverable amount allocated to the individual assets in proportion to their respective carrying amounts.

If the reason for an impairment loss recognised in previous years should cease to exist wholly or in part in subsequent periods, the impairment loss is reversed up to the carried forward acquisition or production costs.

Repairable spare parts for aircraft

Spare parts for aircraft which can be regularly repaired on a cost-effective basis are allocated to non-current assets as repairable spare parts.

The MRO business segment accounts for most of the Group’s repairable spare parts. They are replaced and repaired on an ongoing basis to carry out customer orders and for the Group’s own purposes, and are held in stock to support the Group’s long-term business. The Group’s airlines directly stockpile additional repairable spare parts.

MRO spare parts and spare parts held by the airlines are both measured at cost less depreciation. Material in the MRO business segment is depreciated over five to 20 years, depending on the expected useful life of the corresponding aircraft model. Material directly stockpiled by the airlines is depreciated in line with the expected end of the useful life of the respective fleet model and thus their expected remaining useful lives. The rolling average prices of materials are the starting point for the depreciated carrying amounts.

Leases

The Lufthansa Group is a lessee for certain assets, and property and aircraft in particular. In terms of property, the Group mainly leases airport infrastructure, including hangars, parking and handling spaces, lounges and offices. It also leases other office buildings as well as production and warehouse spaces. In addition, the Group uses aircraft and other operating and office equipment on the basis of leases. To the extent that these contracts include payments for non-leased components, they are not included when accounting for the right-of-use asset. The Lufthansa Group assesses whether the contract contains a lease at the start of the contract in accordance with IFRS 16, i.e. if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Right-of-use assets are measured at cost less accumulated depreciation and adjusted for any change in the remeasurement of the lease liability. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date less any lease incentives received.

The Lufthansa Group has opted not to apply IFRS 16 to intangible assets. Payments under leases with a term of no more than twelve months and leases for assets of low value are recognised as expenses on a straight-line basis over the term of the lease.

Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms or the estimated useful life of the right-of-use asset in question. The lease term consists of the basic fixed term plus the term of any renewal options (to the extent that it is sufficiently probable that the lessee will exercise this option) or the term of a cancellation option where it is sufficiently probable that the lessee will not exercise the option.

If ownership of the leased asset passes to the Lufthansa Group at the end of the lease term or is included in the costs of exercising a purchase option, the right-of-use asset is depreciated on a straight-line basis over the expected useful life of the leased asset.

Impairment testing for right-of-use assets is carried out as described above for intangible assets and property, plant and equipment subject to depreciation.

At the commencement date of the lease, the Lufthansa Group recognises lease liabilities measured at the present value of the lease payments to be made over the term of the lease. The lease payments include fixed payments less any lease incentives owed, variable lease payments that depend on an index or a rate and any amounts expected to be paid in the context of residual value guarantees. Lease payments also include the exercise price of a purchase option or penalties for early termination if the exercise of the purchase or termination option by the lessee is reasonably certain.

The Lufthansa Group has leases that include renewal and termination options, particularly for properties. Judgement is applied when assessing the reasonable probability that the option to renew or terminate the lease will be exercised. When determining lease terms, all the facts and circumstances that offer an economic incentive to exercise renewal options or not to exercise termination options are taken into account. After the commencement date of the lease, the Lufthansa Group remeasures the lease liability if a significant event occurs or circumstances change.

Variable lease payments that do not depend on an index or a reference rate are recognised as expenses in the period in which the event or condition triggering the payment occurs.

Lease payments are generally discounted at the incremental borrowing rate. Reference interest rates based on congruent, risk-free rates in major countries and currencies were used to calculate the incremental borrowing rate. A credit risk premium was added to the respective reference rates.

When the Lufthansa Group acts as a lessor, it classifies leases as operating leases or finance leases. A lease is classified as a finance lease if it transfers essentially all the risks and rewards associated with ownership of the leased asset. If this is not the case, the lease is classified as an operating lease.

As the lessor in an operating lease, the Lufthansa Group presents the leased item as an asset at amortised cost in property, plant and equipment. Lease payments received in the period are shown as other operating income. The Lufthansa Group leases some of its properties and engines to other entities. There are currently no finance leases at the Lufthansa Group.

Accounting for sale-and-lease-back transactions depends on whether a sale has taken place or not. To assess whether this is the case, the criteria of IFRS 15 are used to determine if a performance obligation has been satisfied. If a sale has taken place, the lessee derecognises the leased item and replaces it with a right-of-use asset. A disposal gain or loss may only be recognised for the amount that relates to the rights transferred to the lessee. The remaining amount reduces the carrying amount of the recognised right-of-use asset. If the sales price does not represent the fair value of the leased item or the subsequent payments are not on market terms, corrections must be made. If the terms are below market, the difference is treated as an early lease payment; if they are above market, the difference is accounted for as a loan from the lessor. If there has been no sale according to the IFRS 15 criteria, the lessee continues to carry the asset unchanged and recognises a financial liability in the amount of the transfer price, which is accounted for in line with IFRS 9.

Equity investments accounted for using the equity method

Equity investments accounted for using the equity method are capitalised at cost at the time of acquisition.

In subsequent periods, the carrying amounts are either increased or reduced annually by changes in the shareholders’ equity of the associated company or joint venture held by the Lufthansa Group. The principles of purchase price allocation that apply to full consolidation are applied accordingly to the initial measurement of any difference between the acquisition cost of the investment and the pro rata share of shareholders’ equity of the company in question. An impairment test is only carried out in subsequent periods if there are indications of a potential impairment in the entire investment valuation.

Financial instruments

Within the Lufthansa Group, financial assets are classified in accordance with IFRS 9 as “at amortised cost”, “at fair value through profit or loss”, “at fair value through other comprehensive income (with and without recycling)” and “derivative financial instruments as an effective part of a hedging relationship”.

The category “at amortised cost” consists of financial assets that are debt instruments and intended to be held to maturity in line with the company’s business model. Furthermore, these instruments have fixed payment terms and meet the criteria for cash flow characteristics, i.e. contractual payments of principal and interest. For the Lufthansa Group, this item includes loans and receivables, cash in hand and bank balances in particular. They are classified as non-current or current assets according to their remaining maturity.

The category “at fair value through profit or loss” comprises debt instruments for which the business model envisages neither holding nor selling, or which do not pass the cash flow characteristics test. This is generally not the case for the Lufthansa Group. Equity instruments are also allocated to this category as a rule. The Lufthansa Group generally recognises shares and equity investments that are financial instruments in this category. Derivatives that do not meet the criteria for hedge accounting are also classified in this category.

Debt instruments are classified as “at fair value through other comprehensive income (with recycling)” when the business model envisages both holding and selling these instruments and they pass the cash flow characteristics test. For the Lufthansa Group, this applies in particular to securities held as strategic liquidity.

An option can be exercised to classify specific equity instruments as “at fair value through other comprehensive income (without recycling)”. The Lufthansa Group does not currently exercise this option.

In both cases, the relevant deferred taxes are recognised directly in equity.

The Lufthansa Group uses derivatives for hedging, which are classified as “derivative financial instruments as an effective part of a hedging relationship” provided all requirements for hedge accounting are satisfied.

Financial instruments are recognised at fair value on the settlement date, i.e. on the date that they are created or transferred. With the exception of trade receivables and financial assets at fair value through profit or loss, financial assets are capitalised at fair value plus transaction costs. Trade receivables are measured at the transaction price. The transaction costs of financial assets at fair value through profit or loss are recognised through profit or loss.

Long-term low or non-interest-bearing loans are recognised at net present value using the effective interest method. Subsequent measurement of the financial instrument depends on the classification, either at amortised cost using the effective interest method, or at fair value, through profit or loss or in equity without effect on profit and loss.

A financial asset is derecognised where the rights to payment expire or become irrecoverable, or the financial asset is transferred to a third party. A significant change in the contractual conditions for a financial instrument at amortised cost results in its derecognition and the recognition of a new financial asset. Insignificant changes result in an adjustment to the carrying amount and the financial asset is not derecognised.

Receivables denominated in foreign currencies are measured at the closing rate.

The fair value of securities is determined by the price quoted on an active market. For unlisted fixed-interest securities, the fair value is determined from the difference between the effective and the market interest rate on the measurement date.

If there are doubts as to the recoverability of receivables, then impairment losses are recognised and these receivables are recognised at the lower recoverable amount. Subsequent reversals (write-backs) are recognised in profit or loss. IFRS 9 requires that when a receivable is recognised for the first time, an expected credit loss is provided for, reflecting the credit risk of the receivable before a default event occurs. An external credit risk exists for the Lufthansa Group, especially in its portfolio of trade receivables, for which an expected credit loss is recognised.

Derivative financial instruments are measured at fair value on the basis of published market prices. If there is no quoted price on an active market, other appropriate valuation methods will be applied. Appropriate valuation methods take account of all factors that independent, knowledgeable market participants would consider in arriving at a price and that constitute recognised, established economic models for calculating the price of financial instruments.

In accordance with its internal guidelines, the Lufthansa Group uses derivative financial instruments to hedge interest rate and exchange rate risks, and to hedge fuel price risks. This is based on the hedging policy defined by the Executive Board and monitored by a committee. ↗ Note 45.

Forward transactions are entered into to hedge the foreign currency fluctuation risk. Interest rate swaps and interest rate/currency swaps are used to manage interest rate risks. Interest rate/currency swaps also hedge exchange rate risks linked to borrowing in foreign currencies.

Fuel price hedging takes the form of option combinations for crude oil and gas oil. To a limited extent, hedging is also undertaken for other products, such as jet fuel futures contracts.

Hedging transactions are used to secure either fair values (fair value hedge) or future cash flows (cash flow hedge).

To the extent that the financial instruments used qualify as effective cash flow hedging instruments within the scope of a hedging relationship in accordance with the provisions of IFRS 9, fluctuations in market value will not affect the result for the period during the term of the derivative. They are recognised without effect on profit and loss in the corresponding reserves. If the hedged cash flow is an investment, the result of the hedging transaction that has previously been recognised in equity is set off against the cost of the capital expenditure at the time the underlying transaction matures. In all other cases, the cumulative gain or loss previously stated in equity is included in net profit or loss for the period on maturity of the hedged cash flow.

In the case of effective hedging of fair values that are designated as a fair value hedge, the changes in the market value of the hedged asset or hedged debt and those of the financial instrument will balance out almost completely in the income statement.

Derivatives that do not meet the criteria for hedge accounting are presented in the category “at fair value through profit or loss”. Changes in fair value are then recognised directly in the income statement. For the Lufthansa Group, this generally occurs when the exposure or item being hedged cannot be measured reliably or the exposure ceases to exist prematurely over the course of the hedge.

Embedded derivatives – to the extent that they should, but cannot, be separated from the financial host contract – are also considered together with these as trading transactions for measurement purposes. Changes in market value are also recognised directly as profit or loss in the income statement. Both types must be classified as financial assets stated at fair value through profit or loss.

It is the Lufthansa Group’s hedging policy (↗ Note 45) only to acquire effective derivatives for the purpose of hedging interest rate, exchange rate and fuel price risks.

Initial recognition of financial guarantees to third parties is at fair value. Thereafter, financial guarantees are either measured in the category “at fair value through profit or loss” or at the higher of the originally recognised amount, less any cumulative amortisation through profit or loss in line with IFRS 15 or value of the contractual obligation measured in line with IAS 37.

Emissions certificates

CO₂ emissions certificates are recognised as intangible assets and stated under other receivables. Rights, both those purchased and those allocated free of charge, are measured at cost and not amortised.

Contract assets and receivables

Contract assets represent contractual claims to receive payments from customers where the contractual performance obligations have already been fulfilled but an unconditional right to payment has not yet arisen. Receivables are recognised where the right to receive consideration is no longer subject to conditions. This is generally the case when the Group is contractually entitled to send the customer an invoice. Contract assets mainly relate to production or service contracts for MRO and IT services. Impairments are made on the respective gross amounts of expected payment defaults.

Inventories

The “Inventories” item comprises assets used in production or the provision of services (raw materials, consumables and supplies), purchased merchandise, finished and unfinished goods and related advance payments. In particular, this item shows spare parts for aircraft earmarked for resale or which will be used within the scope of the provision of services. They are measured at cost, determined on the basis of average prices, or at production costs. The cost of production includes all costs directly attributable to the production process, and includes borrowing costs as required under IAS 23 as well as appropriate portions of production-related overheads at normal productivity rates. Measurement on the reporting date is at the lower of acquisition/production cost and net realisable value. Net realisable value is defined as the estimated selling price less the estimated cost until completion and the estimated costs necessary to make the sale. If there are indicators of future inability to pay, corresponding impairments are made.

Assets classified as held for sale and discontinued operations

Individual, formerly non-current assets or groups of assets whose sale within the next twelve months is highly probable are measured at the lower of their carrying amount at the time they are reclassified or at fair value less costs to sell. Fair value less costs to sell is derived from recent market transactions, if available.

Property, plant and equipment and intangible assets are no longer depreciated or amortised and measurement of the carrying amount of investees accounted for using the equity method is suspended once they are classified as held for sale or distribution. While the impairment charge from the last measurement before reclassification is recognised as an impairment loss, all subsequent changes in the measurement of current assets held for sale, for instance due to exchange rate movements, are shown in other operating expenses or income.

Discontinued operations are not included in the result of continuing operations, but are presented in the income statement in a separate item as the result from discontinued operations after taxes.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, cheques received and credit balances at banks. Cash equivalents are financial investments that can be liquidated at short notice. At the time of purchase or investment, they have a maturity of three months or less.

Pension provisions

The pension provisions for defined benefit plans correspond to the present value of the defined benefit obligations (DBO) on the reporting date less the fair value of plan assets, if necessary taking into account the rules on the maximum surplus of plan assets over the obligation (asset ceiling).

The DBO is calculated annually by independent actuaries using the projected unit credit method prescribed in IAS 19 for defined benefit pension plans. The measurement of pension provisions within the statement of financial position is based on a number of actuarial assumptions.

Capital account plans are measured using the market value of the assets assigned to the individual capital accounts as of the reporting date. The present value of the minimum benefit payable when the beneficiary becomes entitled to the benefit is compared with the amount of contributions already paid in, measured using the assumptions for the benefit plans. Additional risk premiums that the employer contributes to insure against early entitlements are included in the current service cost.

In particular, the measurement of these requires assumptions about long-term salary and pension trends as well as average life expectancy. The assumptions about salary and pension trends are based on developments observed in the past and take into account national interest and inflation rates as well as labour market trends. The estimate of average life expectancy is based on recognised biometric calculation formulas.

The interest rate used to discount individual future payment obligations is based on the return from investment grade corporate bonds in the same currency. The discount rate for the euro zone is determined by reference to bonds with an issue volume of at least EUR 100m and an AA rating from at least one of the rating agencies of Moody’s Investors Service, Fitch Ratings or Standard & Poor’s Rating Services. Due to the tight market conditions for long-term corporate bonds, the yields of bonds from public issuers in the euro zone are also included in an extrapolation for long maturities to improve the estimation method.

Actuarial gains and losses arising from the regular adjustment of actuarial assumptions are recognised directly in equity in the period in which they arise, taking deferred taxes into account. Differences between the interest income at the beginning of the period calculated on plan assets based on the interest rate used to discount the pension obligations and the earnings from plan assets actually recorded at the end of the period are also presented without effect on profit and loss. The actuarial gains and losses and any difference between the forecast result and the actual result from plan assets form part of the remeasurement.

Past service cost and effects of plan settlements are recognised immediately in profit and loss.

Payments to pension providers for defined contribution retirement commitments for which the pension provider or the beneficiary assumes the financial risks are recognised in staff costs as they fall due.

Other provisions

Other provisions are recognised for present legal and constructive obligations to third parties arising from past events that will probably give rise to a future outflow of resources provided that a reliable estimate can be made of the amount of the obligations as of the reporting date.

The amount of the provision is determined using the best estimate. Past experience, current cost and price information as well as estimates from internal and external experts are used to determine the amount of provisions.

Provisions for maintenance obligations under leases are recognised on the basis of the contractual maintenance or compensation obligations, comparing the current maintenance condition with the agreed condition on return.

Provisions for obligations to submit emissions certificates are measured on the basis of the average acquisition costs of the certificates intended for submission to the respective register. If forward contracts for emission rights are entered into to cover the submission obligation, they are included in the measurement of the provision at the agreed forward rates. Any additional shortfalls are included in the provision at the market rate on the reporting date.

The management regularly analyses the current information on legal risks and recognizes provisions for probable obligations. These provisions cover estimated payments to the claimant, court and procedural costs as well as the costs of lawyers and any out-of-court settlements. Internal and external lawyers assist with the estimate. When deciding on the necessity of a provision for litigation, the management takes into account the probability of an unfavourable outcome and the chance of making a sufficiently accurate estimate of the amount of the obligation. The commencement of legal proceedings, the formal assertion of a claim against the Group or the disclosure of certain litigation in the Notes does not automatically mean that a provision was created for the risk concerned. A ruling in court proceedings, a decision by a public authority or an out-of-court settlement may cause the Group to incur expenses for which no provision has been made because the amount could not be reliably determined, or for which the provision created and the insurance coverage is insufficient.

Provisions for restructuring and severance payments are recognised when at least a constructive obligation applies for corresponding measures. The prerequisites for this are an adopted formal restructuring plan that includes the affected business unit or the affected part of a business unit, the location and number of employees affected, the detailed estimate of associated costs and the time schedule. In addition, the key points of the plan must have been communicated to the employees concerned. The restructuring provisions only include expenses directly attributable to the restructuring measures that are necessary for the restructuring and are not related to the future operating business. This includes, for example, expenses for severance payments to employees.

Provisions for onerous contracts are recognised on the basis of directly attributable costs and income expected, as well as any opportunities to terminate the relevant contracts early.

Provisions for obligations that are not expected to lead to an outflow of resources in the following year are recognised in the amount of the present value of the expected outflow, taking foreseeable price rises into account.

The assigned value of provisions is reviewed on each reporting date. Provisions in foreign currencies are translated at the closing rate.

If no provision could be recognised because one of the stated criteria was not fulfilled, the corresponding obligations are shown as contingent liabilities and discussed in the relevant section.

Liabilities

Trade payables and other financial liabilities are initially recognised at fair value, which is approximately equivalent to the carrying amount.

Measurement in subsequent periods is at amortised cost using the effective interest method.

Liabilities denominated in foreign currencies are measured at the closing rate.

Obligations from cash-settled share-based payment transactions are measured at fair value in accordance with IFRS 2. Fair value is measured on initial recognition, at every reporting date and on the settlement date. Fair value is derived using a Monte Carlo simulation. The liability is recognised on the basis of the resulting fair value, taking the remaining term of the programme into account. Changes are recognised as staff costs in profit or loss.

The costs of equity-settled transactions are measured at fair value, applying a suitable valuation model at the time of the award. These costs, together with a corresponding increase in equity (other neutral reserves) are recognised in expenses for employee benefits over the period in which the service conditions and the performance conditions, if any, are satisfied (vesting period). The diluting effect of the outstanding share options is taken into account when calculating (diluted) earnings per share. Details of the assumptions used for the model and the structure of the share programmes can be found in ↗ Note 39.

Contract liabilities

A contract liability is an obligation on the part of the Group towards a customer to provide goods or services for which the customer has already performed an obligation (such as making an advance payment). Contractual liabilities are recognised as revenue when the Group fulfils its contractual obligations. The Group’s contract liabilities consist of liabilities from unused flight documents, unredeemed miles from customer loyalty programmes, construction contracts and other contract liabilities.

Until they are used, sold flight documents are recognised as an obligation from unused flight documents. Coupons that are unlikely to be used any more are recognised as traffic revenue in the income statement at their estimated value. The estimate is based on past statistical data.

The Lufthansa Group uses various bonus miles programmes with the aim of ensuring long-term customer loyalty. Participants in the Miles & More programme can collect and redeem bonus miles for flights with airlines in the Lufthansa Group, and with numerous partners (including other airlines, hotels, global car hire companies, financial and insurance providers, telecommunications companies, retailers, automobile clubs, etc.). Miles expire three years after they are collected in accordance with the terms of membership, unless they are protected by frequent flyer status or credit card use.

Observable past redemption patterns are used to measure the premium claims that are collected on flights with airlines in the Lufthansa Group. Miles that are expected to be used for flights with airlines of the Lufthansa Group are measured according to the average price of the premium flight or upgrade for the average number of miles used. The price is calculated on the basis of past redemption patterns, weighted for the various geographic regions and booking classes. In addition, corrections are made to account for the reduced flexibility of premium flights and the fact that miles are not granted in this case, by comparison with non-award tickets. Miles that are expected to be redeemed for other bonuses are measured at the average price for these bonuses and the average number of miles redeemed. The prices for additional miles are recalculated every year and applied to all additions in that year. Consumption of miles is measured using the average rate for total miles at the beginning of the year (same as the previous year).

Premium points collected from other partners are measured at the amounts paid by these partners in relation to the average number of miles collected and redeemed.

The calculation method for the legal and economic expiry rate entails calculating the expiry rate from the values observed in prior years, increased or decreased as necessary by reference to past trends or future enhancements to the programme.

Government grants

Government grants are recognised at fair value when there is reasonable assurance that the grant will be received and that the Group will fulfil all conditions attached to such grants.

Government grants for the acquisition of property, plant and equipment are included in other liabilities as deferred income and recognised in other operating income on a straight-line basis over the estimated useful life of the corresponding asset. Non-monetary assets are only recognised in the income statement when the necessary eligibility criteria have been fulfilled. Until then, the corresponding amounts are also shown under deferred income.

Tax assets/liabilities

Claims and obligations in respect of tax authorities that are uncertain with regard to their probability of occurrence and/or amount are recorded as tax assets or liabilities on the basis of the most likely or expected value. Any contingent liabilities or assets existing in this context are addressed separately as needed.

Deferred tax items

In accordance with IAS 12, deferred taxes are recognised for all temporary differences between the statements of financial position with regard to the tax of individual companies and the consolidated financial statements. Tax loss carry-forwards are recognised to the extent that the deferred tax assets are likely to be used in the future. Company earnings forecasts and specific, realisable tax strategies are used to determine whether deferred tax assets are usable, i.e. whether they have a value that can be realised. The planning period used to assess this probability is determined by the individual Group company according to the specific circumstances; it is generally four years unless there is convincing evidence of possible prolonged use beyond the general horizon of the official Group planning. Impairment testing for deferred tax assets resulting from tax loss carryforwards in Germany and Austria has been conducted while considering qualitative indicators for longer periods of use. Other factors in the assessment include the reason for losses, the existence of a history of losses and prudence in considering future risks in the respective plans. In general, for entities with a history of operating losses not due to singular, external factors, no deferred taxes were recognised for tax loss carry-forwards ↗ Note 14.

Current income taxes

The Lufthansa Group is liable for income tax in various countries. Material assumptions are necessary to calculate the income tax liabilities. For certain transactions and calculations, the final taxation cannot be assessed definitively in the course of normal business. The amount of the liability that may arise from the findings of expected future tax audits is based on estimates of whether additional income taxes will be owed, and if so, at which amount. The assumptions underlying the estimates are continually reviewed and adjusted as necessary. Nevertheless, different tax payments may occur in the period in which the final tax determination is made.