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Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the analyst and press conference call of the third quarter results 2020. [Operator Instructions]I would now like to turn the conference over to Dennis Weber. Please go ahead.
Yes, good morning, ladies and gentlemen, and welcome to our conference call today. Let me briefly outline the format of today's call, which we have set up as a joint call for analysts and investors again. Our CEO, Carsten Spohr, will present you our third quarter results and our outlook for the remainder of the year. I would also like to introduce Wilken Bormann, Senior Vice President, Group Finance, who will participate in the Q&A session later on.Presentation slides, which Carsten will refer to, are available in the Investor Relations section of our lufthansagroup.com website. The management presentation will be followed by 2 separate Q&A sessions, one for our analysts in English language and the second one for journalists in German language. And we ask all participants to stick to this order. Thank you very much.I'd now like to hand over to Carsten Spohr. Please go ahead.
Yes. Thank you, Dennis, and ladies and gentlemen, welcome also from my side the table to this conference call. First of all, I hope that in this crazy times, you and your families are well and healthy because it's obvious the corona pandemic continues to have a significant impact on all of us, but surely on the Lufthansa group, which is what we are discussing here today.The worldwide number of COVID-19 infections has been rising again dramatically for several weeks now, especially in our home markets here in Europe, and it goes on. Just earlier this week, a month-long lockdown has come into force in Germany as well as in Austria. Other European countries are also increasing their corona measures. And important long-haul markets such as the U.S. seem not to open up anytime soon. This will make the winter months, which are challenging for our industry, in general, even harder. However, we are confident that the Lufthansa Group will master the coming months in a way that will further even strengthen our leading position in the industry. And I will explain the reasons for this in detail today.First, we limited our operating loss and cash flow -- our cash outflow in Q3 through a very disciplined cost and cash management. Secondly, our logistics business, Lufthansa Cargo, goes from unknown strength to strength. Third, for the fourth quarter of 2020, we will continue our very disciplined capacity management, only operating flights which contribute cash to the group. Fourth, our strong and proven hub strategy shows its advantages in this crisis because demand on low levels is bundled by hubs, while many direct point-to-point services disappear. And last but not least, number five, overall, our solid liquidity position equips the group for tough winter season ahead.When we presented our half year results in early August, we were confident that our business would gradually recover in the second half of the year. And indeed, performance in July and early August was even better than we initially expected. Good leisure demand led to load factors in European short-haul of almost 70% in July and more than 65% in August. This was significantly above the levels in long-haul. Since then, however, the recovery has stopped. Leisure travel has come to an end due to new limitations. New infections starting -- started rising, causing travel restrictions to increase further and further. And our corporate customers have not yet returned.In light of this market backdrop, the decline of load factors at the Network Airlines does not come as a surprise. Nonetheless, we still ensured that virtually all flights we operated in the third quarter covered their costs. This includes a positive contribution from cargo load in the bellies. The strength of cargo meant that we operated with passenger breakeven load factors of sometimes 0, at least on some of our long-haul routes. And yields increased as a result of the higher share of short-haul in the traffic mix and because of the higher relative share of short-notice bookings. While yields were down on short-haul compared to the prior year level, they increased in the intercontinental business.In sum, the expansion over summer and better leverage of our cost base resulted in operating loss smaller than in Q2, amounting to slightly more than EUR 1.2 billion. Operating expenses were reduced by a remarkable 60% in the Network Airlines.Let's talk about Eurowings. The performance of Eurowings followed the trends I just outlined for the Network Airlines. However, the capacity decline in the third quarter was less pronounced there because of the airline's larger exposure to the touristic segment and its relatively higher share of domestic routes, which are less affected by travel restrictions. Nonetheless, adjusted EBIT amounted to a negative EUR 108 million.The Cargo segment continued to be the bright spot in our business also in the third quarter. The industry-wide capacity reduction and the grounding of the majority of long-haul aircraft caused yields to increase significantly. Against this market backdrop, we played out the strength of our freighter fleet, which normally accounts for just around half of total revenues. We benefit from operating one of the largest and most volant freighter fleets of the world. While total capacity was down 42% due to missing belly capacities, loads increased and yields were up by almost 50%. As a result, revenues almost reached the prior year level. Based on its 9-month profit of EUR 446 million, Lufthansa Cargo is on course for a new record year.In contrast, the adjusted EBIT of the MRO segment declined to a negative EUR 86 million in the third quarter and a negative EUR 208 million in the first 9 months. Some improvements in markets with significant domestic travel flows, such as China, continue to be offset by weak demand for aircraft maintenance elsewhere in the world. In addition, write-down of receivables and spare parts burdened the segment's results, accounting for the largest part of the year-to-date loss.Profits in the Catering segment continue to be under significant pressure as well. The effect from global capacity reductions and corona-related service restrictions on board was only partly offset by a further step-up of cost savings.Finally, the adjusted EBIT in the Other Business and Group Functions segment improved to a negative EUR 77 million in the first 9 months. Last year, this figure amounted to minus EUR 169 million. The reason for this significant improvement was a strict cost discipline in our central administrative functions.In summary, the average monthly operating cash drain in the third quarter amounted to EUR 200 million. Please note that the definition is based on our operating cash flow, excluding changes in working capital, tax payments and other nonoperational items.Let me also highlight some larger effects below the adjusted EBIT line. Adjustments, that means the difference between EBIT and adjusted EBIT, amounted to almost EUR 1.7 billion in the first 9 months. EUR 1.4 billion of adjustments alone relate to aircraft impairments. Since the beginning of the crisis, we decided to retire 110 aircraft earlier than planned. This includes the entire Airbus 380 and Airbus 340-600 fleets, although some of these aircraft could be removed from long-term storage should market conditions improve much quicker than currently anybody expect.In addition, we booked EUR 764 million of losses related to fuel over-hedging in the first 9 months, slightly less compared to the half-year figure. EUR 141 million of losses were cash effective in the third quarter. We expect further cash-outs in the fourth quarter given that fuel consumption will continue to be very low compared to our original plans. The effect will fade out, though, in the first quarter next year because we stopped hedging at the beginning of the crisis.Let me now turn to free cash flow. Our performance in the third quarter highlights that cash preservation has become the absolute focus of the group financial management. In the past 3 months, the operating cash drain was offset by the following 3 factors. First, new bookings, especially related to the uptick in leisure demand over the summer, contributed to a net EUR 252 million. Second, we managed working capital very successfully by putting a lot of focus on receivables collection as well as the extension of payment terms with suppliers. This created a positive contribution of EUR 175 million. Third, we agreed on the deferral of import turnover tax at Lufthansa Technik, resulting in a positive cash effect of EUR 339 million in the quarter.As a result, almost the entire free cash flow decline of EUR 2.1 billion was related to the payout of EUR 2 billion of customer refunds, as shown on the chart. This means that we have largely worked through the Q caused by the exceptional large number of flight cancellations in the early phase of the crisis. Refunds, hence, will be significantly lower in the fourth quarter.My comments should have made it clear that we are pulling all levers to ensure that we minimize cash outflow as fast, as strong, as far as possible, especially in light of the, again, more challenging industry outlook for the winter. We are very quick in reducing fixed cash costs at the airlines by more than 1/3. Short-time work continues to play an important role in this regard. However, around half of the decline in personnel costs is driven by another factor, including the reduction of the workforce and less overtime and bonus payments.Out of our long list of measures to protect liquidity, let me also highlight the deferral of aircraft deliveries and related payments. We expect investments to -- now to just around EUR 1.3 billion in both 2020 and '21, although we still expect to take delivery of around 45 new aircraft in these 2 years. Many of them will be financed by the reallocation of prepayments made for other aircraft, which deliveries will be delayed or postponed. And in individual cases, we will also take advantage of sale and leasebacks to reduce cash-outs in the short term. For example, we turned one outright purchase of an Airbus 350 into an operating lease in the third quarter and also leased one new Boeing 777 freighter for Lufthansa Cargo.As a result of all these measures, adjusted free cash flow declined far less than the adjusted EBIT in the first 9 months. This limited the debt increase since year-end 2019 to around EUR 2.3 billion only. At the end of September, net financial debt amounted to EUR 8.9 billion. Pension provisions amounted to EUR 8.1 billion, affected by the negative performance of plan assets.Ladies and gentlemen, our quarterly results showcase our success when it comes to using cost and preserving liquidity in this unique situation the industry is in. This gives me confidence that we can also master the challenges ahead. We will enter the winter period with liquidity of EUR 10.1 billion. In addition to EUR 3.8 billion of cash at hand, EUR 6.3 billion of the stabilization package in our home market continued to be undrawn in the end of the first -- sorry, the third quarter. This includes the full EUR 4.5 billion Silent Participation I of the German package, which will be accounted for as equity. Drawdowns of EUR 2.7 billion included the EUR 1 billion KfW loan and the EUR 1 billion Silent Participation II in Germany as well as EUR 350 million of stabilization measures in Austria. Finally, the capital increase through which the German economic stabilization fund built its 20% stake contributed EUR 300 million of equity.Ladies and gentlemen, giving a reliable outlook regarding the future development of this unique crisis is more difficult today than it was ever before. No one can predict how long travel warnings, entry bans and lockdowns will last. No one can predict how air travel picks up again and when we see a sustainable recovery. From the limited visibility we have, we just know one thing for sure already, the upcoming winter months will be an immense challenge, not only for us at Lufthansa but for the whole aviation and travel industry.We expect the demand for air travel to remain low due to the rapid increase in the number of new COVID-19 infections, resulting in further lockdowns and travel restrictions. We revised our capacity plans for the fourth quarter based on our approach to just operate cash positive flights. Our airlines will offer a maximum of 1/4 of the 2019 capacity. The number of guests on this flight is expected to be less than 1/5 of the previous year's figure.In this historic crisis, we believe that our business model offers strategic benefits. One of them is our hub setup. Its advantages are more evident than ever. As fewer people travel by air, serving point-to-point connections into many destinations in an economic way becomes impossible. Many domestic and European point-to-point offers were already canceled in the light of this logic. Through our hubs, however, we bundled traffic flows from many different origins. For us, this creates an opportunity to absorb passengers from O&Ds where demand has become too low to support the point-to-point connection. It is a mathematical certainty in our industry that less demand leads to more bundling over hubs.Despite this strategic advantage, we know that we have a lot of work to do to ensure our group will emerge stronger than others from this crisis. Our short-term focus is on protecting liquidity. At the same time, though, we are not losing sight of the need to adjust our business through the changes brought about by the corona crisis. We have, therefore, initiated restructuring measures across all business units and functions. And we are determined to create a significant positive impact on all areas of the business at the necessary speed. The program will focus on identifying additional measures to reduce costs further in the long term, and it will make the Lufthansa Group sustainably more efficient in all areas.The corona crisis is fundamentally changing our markets, and the Lufthansa Group has to adapt. We will become smaller, we will become less complex, and we will become more efficient. We have already made substantial progress in adjusting our size to the new conditions. Over the course of the last month, around 14,000 people have already left the group. This, alone, will result in a sustainable reduction of personnel costs by EUR 900 million per year, and we will continue on this path consistently.We reduced the number of top management positions at Lufthansa by 20%. In Germany, we agreed on a crisis package with the unions UFO and Vereinigung Cockpit, representing our cabin and cockpit crews, respectively. The agreement with UFO covers the whole period until 2023. The one with Vereinigung Cockpit dates until the end of the year, with negotiations of a follow-up agreement ongoing.We're determined to save as many jobs as possible in the Lufthansa Group. But to do so, we need the cooperation of the collective bargaining partners. Therefore, we are negotiating crisis measures with all employees groups to stabilize the company.Just earlier this week, we have resumed negotiations with Verdi to reach an agreement on crisis contributions for the more than 24,000 collectively margined ground workers. And I can only repeat what I've already said in August as we presented the Q2 figures, unfortunately, the pace of negotiations is slower than I had hoped, clearly too slow, and for sure, slower than this crisis actually requires. And this is why we have also started negotiations with our various workers' councils in Germany on a so-called reconciliation of interest process. Together, we will talk about reorganization plans and the necessary reduction of 2,800 ground and administrative jobs in Germany. And we will also talk about the reduction of 1,100 cockpit crew members in the main airline, Lufthansa.The situation is, of course, completely new for both sides. After decades of growth, we are now talking about shrinking the business and eliminations of tens of thousands of jobs. But this pandemic will not be over in a few months. We cannot simply wait this crisis out. It will burden our business, our industry for years to come. And its sheer scale makes a significant contribution from all employee groups inevitable.Ladies and gentlemen, as I mentioned before, giving you a reliable outlook is not easy in these challenging times. Nevertheless, we wanted to share some of our short-term financial expectations with you today.Based on our restructuring initiatives and pending the potential closure of labor agreements in the next few months, we expect a negative impact on adjusted EBIT in Q4 from these restructuring expenses and other crisis-related onetime effect. Excluding these effects, we expect the operating cash drain to be limited to around EUR 350 million per month in the fourth quarter. The overall adjusted free cash flow, which also captures working capital investments and other nonoperational items, will be less negative in the fourth compared to the third quarter, first and foremost, because of significantly lower customer refunds.Looking ahead, we continue to stand by our previously communicated goal. During the course of '21, we want to return to positive operating cash flow. This depends on operation of a minimum of around 50% of our 2019 capacity.Ladies and gentlemen, not all airlines will master this historic crisis equally well. And I'm convinced that the Lufthansa Group not only can get through this crisis but can also defend its positions as Europe's leading airline group. We are working consequently on the restructuring of the group. Our solid liquidity position equips us for the upcoming winter months, and we have a significant advantage due to our hub strategy.And additional to this, we will still strive to provide our customers with the best airline product and the best travel experience, premium made in Europe. And this includes a consistent and industry-leading approach regarding hygiene measures. We believe that health protection and freedom of travel can go hand-in-hand, for example, through comprehensive rapid testing.The best airline product includes providing a maximum of flexibility to our customers regarding the rebooking of flights, and it, of course, takes sustainability into account. We are determined to use this crisis to further reduce our climate impact and to strive for sustainable and value-oriented growth rather than blind growth.The global society in a modern world economy cannot exist without transport in the air for long. Flying has an enormous value for societies, culture, education, economies and the international understanding. The connection between continents makes the world more stable and more peaceful. Tourism is essential, especially for structurally weak regions. And private experiences such as studying abroad, friendships across the globe can only be made possible and maintained by flying. And we firmly believe that the long term, this will not change despite the corona crisis. The core of our business will remain the same, during the crisis and surely afterwards. It's us who are connecting people, cultures and economies.Thanks for your attention. We now look forward to your questions.
[Operator Instructions] The first question is from the line of Daniel Roeska from Bernstein Research.
If I kind of do back-of-the-envelope calculation, EUR 4 billion in cash, EUR 6 billion undrawn, burning something between EUR 2 billion and EUR 3 billion until Q2 and EUR 3 billion maturities next year, that depletes liquidity kind of back down to levels that may become uncomfortable as you head into summer. Can you talk about the scenario range you have in mind for the next couple of months and what -- how that relates to the need for additional financing? You've previously said that you had enough time to wait for markets to improve and financing conditions to improve to do aircraft sales and other financing actions. Is that still true?And in that context, thirdly, can you talk about your progress on potential financing sources within the near term, let's say, within the next 6 months on more fleet sales, renegotiating any of the maturity dates, maybe going back to the government for more support? So kind of 3 questions all centered around, is there enough cash to get through next summer and through next winter?
Sorry, I don't support the first part of your question. With EUR 10.1 billion -- or let's say, EUR 10 billion of liquidity and burnings of EUR 350 million in the worst part of the year, the winter to come, we have a lot more room to breathe than you are indicating with your question. And of course, there is, as we all know, additional measures to raise, be it debt in the market if required. So we stick with our statements that there is no need for fire sales in our portfolio and there's no need for sale and leasebacks at unfavorable terms, like we have seen them in the industry over the last weeks. And we feel in a strong liquidity position, not just for the winter but for the whole year of '21, whatever it will bring, and it's necessary for another winter between '21 and '22. So the answer is yes, we stick with our statement.
Now maybe I'll ask, what level of cash liquidity is kind of the comfortable minimum you would want to avoid breaching as we go through '21?
Well, let me give you an answer which reflects to the situation we had this spring. As you know, we were close to a difficult situation with EUR 2.8 billion cash remaining. Out of more than EUR 2 billion belong to our customers, which we have -- as you all know, have paid out by now. So if you do a rough calculation, you obviously know that we don't need to be anywhere close to that number we had to be near a few months ago. And we're also still comfortable that we will be cash positive in '21 once the market picks up to a 50% capacity being allowed to be used for us. So again, my answer, I think, is much more positive than your question is implying.
Next question is from the line of Ruxandra Haradau-Doser as a private investor.
Three questions, please. First, you guide an average cash burn of EUR 350 million a month for Q4. Was this a cash burn in October? Or is this [ silently ] lying on a traffic recovery during the Christmas season? I'm asking particularly because from previous statements, my understanding is that July and August stays flat, but in September, the cash burn is higher than you guide as an average for Q4. So did you see the improvement in cash burn from September to October? And if yes, what was the driver for this?Second, you were one of the first airlines to address rapid testing. Could you please talk about your experience so far with this test? And from discussions with politicians, producers, the airports, how confident are you that rapid tests will be extensively used at the airport in your home markets next summer?And third, what is your view on the airport landscape in Germany going forward? Most airports in Germany were generated -- were generating for many years losses before this crisis, and you mentioned that point-to-point connectivity is likely to suffer in the future. So do you expect the government and local politicians to continue to support the airports that did not prove a viable business model already before the crisis? I think it is quite relevant for you because if airports are artificially kept alive and allowed to attract the airlines by offering tariffs that do not cover their cost, it impacts your originating catchment area.
Yes. Thank you very much for these comprehensive questions. Our EUR 350 million cash drain guidance for Q4 is an average number. And to be honest, this can only be done for more than a month because we have things which happen at the end of the month. There's payments for -- which you don't do every week. So there is no, actually, upside on doing this on a weekly or daily logic.Why are we so optimistic the refunds will be significantly less in Q4 than in Q3? Remember that number, EUR 2 billion refunds in Q3 are basically the whole negative cash burn of the whole quarter we are reporting on today. And at this point, of course, I can tell you that September was worse than July and August, as we pointed out, but it's too early to give you any indication on individual months for Q4.At testing, as you probably know, we have started some testing on the mild cases between Vienna and Berlin, also between Munich and Hamburg with our own staff in that regard. So we just think it's important now to gather information on testing to eventually be ready to use this to relaunch global air travel. And we are in talks to our partner, United, that we will be starting something between Germany and the U.S. They are also doing between the U.K. and the U.S. So I think there's various things in the world happening that we all gain experiences, I mean, to come in close contact with the CEOs of the big pharmaceutical companies, how they are progressing on their testing qualities. So I think this will be -- even before destination comes into play, testing will have an impact on our industry.Airports -- I do believe there is a political will in a country like Germany, which is very distributed wealth to also support smaller aircraft as far as that is legal. And we all know there's new restrictions on this. So what you are being afraid of that there will be similar support of small airports to point-to-point airlines, like in the past, I think that is legally impossible, will be limited. But generally, I do believe, and if you read the papers in Germany today, the government has understood how important aviation is, how important aviation is for the German economy, which, as we all know, is the most export-oriented economy in the world, and therefore, be it [ ENSPs ], airlines, airports, they will receive certain support from the government in the legal framework, which is the [indiscernible].
The next question is from the line of Stephen Furlong from Davy Research.
Just in your comments, I mean, I know it's kind of a scenario where you would see positive operating cash flow is dependent on around 50% of capacity of 2019. In terms of the mix of the business, maybe next year or just crystal ball going forward, do you think it's going to be more short-haul than long-haul or vice versa, more investments or growth in certain hubs or, let's say, the passenger airline rather than, say, Eurowings? Or taking things like, say, by product, the likes of premium economy? So I'm just interested in your view, in general, maybe next year but more longer term because certainly, the mix of business, not just for Lufthansa but for everyone, is going to change to some extent.
I think what we are seeing, and we did see, for example, in the summer, is that short-haul comes back faster than long-haul, not surprisingly, also less several restrictions, not right now, to be honest, as we speak, but in the summer. And of course, also the short-haul helps us even more based on our hub strategy where we are seeing traffic flows via our hubs, which we have not seen in the last years because they were all served point-to-point. And now these point-to-point volumes are too low to fill a flight. We all know point-to-point airlines tend to have only fairly large aircraft. Now suddenly, those volumes go by our hubs where we can bundle traffic. So I see that positive element we saw in the summer coming back to us when we see a recovery of traffic.And the second thing I can say is that, obviously, leisure comes back faster than corporate. We saw it also in the summer. It's also understandable. But let's not forget there's -- whenever I talk to corporate customers, there's such a backlog of travel needs. So sure, once restrictions will fall, testing, destinations, other things come into play, we will also see a stronger comeback of corporate than we have seen in that short window this summer, I'm convinced. But again, short-haul faster than long-haul, leisure faster than corporate.And product correlates to that to a certain degree. We all know the business class, there's more corporate. First class, by the way, is nowadays more leisure than corporate, wealthy French, German, Swiss people, but as a small segment. So basically, I think the first 2 statements are important ones.
Next question is from the line of Jarrod Castle from UBS.
There were some comments from Fraport kind of talking a little bit about 2021 and saying maybe 35% to 45% traffic guidance. So I just want to get an idea, is that also in the context of them having conversations with you and your views on traffic recovery?Secondly, you spoke a bit about German airports and support there. Obviously, there's this challenge from Ryanair about the financial aid. So just any thoughts from your side, how you see things going in that respect?And then just lastly, where are we now in terms of asset write-downs and potential disposals within the group?
I will take the first 2, and Wilken Bormann will answer the third one. I think the Fraport comments are not out of line with our comments. We are going to be starting with a very slow first quarter. I think the next 25%, which I indicated is also the 25% for the first quarter. And of course, Fraport and us are in intensive talks because one of the upsides of this crisis is that we will see probably more focus on intermodal traffic, people approaching the airport by train and then moving onto a flight, which we have been pushing for a long time, but we now see new energy behind that, both from us, from the German railway, from the Swiss railway, the Austrian railway and also the government itself. So there is a link between the airports and us. Obviously, and when I talk about reaching 50% next year, of course, that's not necessarily an average, is that we were hoping to be cash positive once we break to that 50% line.Financial aid. I think, to be honest, a lot of PR is done on that one. I think every global airline has received financial aid, at least all 3 players in Europe, all 3 players in the U.S., all 3 players in China and truly, our friends from the Gulf and Istanbul who are government-owned anyway. And even the carriers you are quoting who are only doing short-haul, where there is much less financial impact, have all received financial aid, sometimes in percentage of their turnover more than Lufthansa. So I think we should all separate between the PR done around financial aids and running to courts and the truth of the facts. And I think once this crisis gets stronger and longer, you see a lot less press conferences also from my competitors on this than in the first weeks.
Okay, Jarrod, thanks for your question with regard to the impairments. So we have done, first and foremost, our fleet impairments in Q2 and Q3, which amounts to EUR 1.4 billion, and this is mainly located for the A380 long-term storage and for the A340-600. So EUR 1.2 billion out of this EUR 1.4 billion are arising from that. In addition to that, we have some impairments with regard to our receivables in the amount of roughly EUR 200 million.For the remainder of the year, we can't rule out, of course, further impairments. But to be honest, so we have done the impairment for our fleet, and that was by far the biggest chunk. And so there is no planning for additional impairments in the section of our fleet. So therefore, we cannot rule out that, but we have seen by far the biggest chunk in Q3.
Next question is from the line of James Hollins from Exane BNP Paribas.
First of all, on staff reductions. I think you previously talked about 22,000, but I think you indicated maybe a month ago that, that number needs to go higher. I was wondering if you can put a number on it or at least a rough one.And secondly, the VC Union negotiations, looks like the deal ends obviously fairly soon. I was wondering how that relationship is going and whether we should expect a longer-term deal with the all-important pilots.And final one, just following up on Fraport. You don't normally talk about how you're working well with them. I was just wondering how we're thinking about negotiations on tariffs for 2021.
On staff, the 22,000 in a way is an old number because we increased the number of aircraft to be permanently taken out, and that number resulted in basically somewhere around 27,000 FTEs, or the way we put it is that it would be great, I keep telling the unions, if they pull together with us in a way that we can maintain at least 100,000 jobs in Lufthansa, which I think would be almost a psychological target for the unions, for the staff, for all of us, maybe even for the German public and German politics to make this a company of that size also in the future. So starting from 130,000 kind of gives you the same indication. And of course, there is short-time quotas in that. So talking about FTEs and staff is not the same thing as we know.But this is a moving target. And to be honest, the more unions will allow us to lower our costs, the more people can stay in Lufthansa. The more they don't, and I come to that now with the pilots, doesn't more have to go. And I think it's important, especially for those of you not from Germany, to understand that in Germany, we have a 2-tier system. First, you talk to the unions about lowering costs, allowing part-time models and all these things. And then you also talk to the workers' councils about forced leaves. And the less we reach agreements with the unions on the first element, the more people will be forced out by the second module. When you talk to the workers' council -- and which in Germany takes almost up to a year, so we're probably talking sometime mid-'21. But even without agreements with the unions, we are legally allowed to fire people in the amount required. And therefore, I am positive that the unions have a strong interest to come to solutions with us before we come to that second step sometime in '21.So I think that's a German specialty, for those of you living abroad, maybe it's important to understand. And that's why always in time, we reach agreements with the corporate union. Obviously, we have agreements to the end of the year. I promise you, we'll get one for next year because otherwise, the impact on the staff would be much worse than if they have an agreement with us, and the staff knows that. Every time I fly, I get the same question. So I think it's in the joint interest of the union and us to have more innovative solutions agreed in the first module before we all move to the second one where, with the workers' council in a more legal process, you talk about forced dismissals.On Fraport, it's still the same. When I talk about quality and cost in Fraport, I'm not happy. When I talk about the location of Fraport, its connections to the German railway system, to the German freeway system, it's an airport where we are bundling our hub activities right now. But there is no agreement yet with Fraport on tariffs in '21. But you have seen their numbers, so I'm quite positive that there will be room to maneuver with them.
Next question is from the line of Jaime Rowbotham from Deutsche Bank.
Two from me. First, it's helpful to get that guidance on the expected operating cash burn for Q4 of EUR 350 million per month. In addition to that, it feels like there may be a number of smaller amounts that could potentially add up to a larger figure, things like deferred taxes, deferred supplier payments, in addition to some further refunds and a bit more cash-out on the fuel over-hedging. Is it possible to give a rough idea as to how much you think those items in sum might weigh further on the liquidity in Q4?And then second question, what's the level of flexibility available to you in terms of calling on the EUR 4.5 billion of Silent Participation I? Presumably, you can take it in tranches. And if so, is there a minimum amount for those tranches?
I'll start on the second one and hand over to Wilken for the cash-out in Q4. No, we have full flexibility agreed with the German government and also the Swiss government and also the Austrian government, by the way, to somewhat less degree, but your question is on the Silent Participation, which we only have in Germany, we have full flexibility on that. When do we take it, in which sizes, slices, tranches, or not even everything required.
And Jaime, to your first question, I mean, we have to differentiate between free cash flow and our cash flow in definition. So the free cash flow will be less negative in Q4 than in Q3, and this is mainly driven by the refunds, by the lower refunds we are expecting to pay. And the EUR 350 million cash drain you were mentioning is something like an adjusted KPI because we want to exactly -- not including all these volatile elements like tax payments or refunds or early bookings. So therefore, we did that excluding the working capital element. So therefore, the EUR 350 million cash drain is more or less related to our operations, so where can our operation save money and bring the cash drain down. And so as you mentioned, so we are confident to reach EUR 350 million, but these volatile elements are excluded.
Could I just follow up with one example? So it looks like Lufthansa Technik, for example, deferred EUR 240 million of tax in Q3. I mean, is that something that probably now gets paid in Q4? Or is it a longer deferral? Perhaps on that particular one you could add something.
Yes. No, this tax deferral goes into '21. So if you ask for Q4, there will be no further tax payments of that nature being revised from what we achieved in Q2 and Q3. This will happen in '21.
Next question is from the line of Johannes Braun from MainFirst.
Firstly, again, on the free cash flow and cash burn. You kind of mentioned it already in the previous question, but overall, can you quantify how much of, let's say, cash-outs have been pushed into 2021 within your good working capital and cash management this year?Then secondly, I think you recently signed an agreement with Munich Airport regarding long-haul capacities and fees. Can you quantify the savings here?And then lastly, just on the union talks, it's my understanding that all 3 major German unions are opposing the Ocean platform. So how do we stand with Ocean, please?
I start with question 2 and 3, and Wilken will take the first question. With Munich Airport, we indeed have signed an MOU, which includes cost savings and efficiency gains, but the number of savings, the volume will very much depend on the volume of flying. This is a long-term agreement, so I cannot give you an [ indication ] on that at all as long as we don't know what will happen.On the union talks, with -- our activities on the Eurowings long-haul, I mean, there is obviously politics being played. I've said numerous times, we will take -- the Eurowings intercontinental aircraft, which we had before the crisis, we are forced to put them into a new AOC. We use them in SunExpress and SN Brussels before. We want to bring that together, including that no more -- long-distance flying in CityLine will take place into a new OSC, and that will just be -- not just the bundling, it also will reduce the number of airplanes in this element.To allow as many people as possible to find jobs who now are losing their jobs, we will offer part-time work. That reduces their monthly pay. But it's based only on the fact that we are putting more people in there by forcing them into part-time or longer part-time rather than sending too many people into unemployment. So that, I think is the whole secret behind the story.The brand will be Eurowings. It will be less than these 14 aircraft long-haul, and we had 8 aircraft short-haul last year, so 22 total, and we'll be operating 3 aircraft in the winter schedule, and '21 summer, probably go up to 7 aircraft coming from 14 before. So this is nothing like -- whatever undermining our restructuring efforts in the main airline or whatever sometimes you read, this is part of the, let's say, PR around our negotiating, which are difficult. Not as difficult as in other countries, but still it's going to be a smaller Eurowings intercontinental fleet for the next years, and we'll pay the same salaries as before but on a part-time basis.
Can I just quickly follow up? To what extent do the unions have a say in the Ocean platform strategy?
This is why they're using PR work to give us a difficult time because we don't have a say on where we allocate our aircraft. Remember, we had that big fight with our unions for 3 years when I took the job. In that 3 years, we broke every rule that we can now -- or every limitation that we can now put the aircraft where we want to. One exception was the minimum number of aircraft pre-COVID where we had agreed on with the main airline pilots. But everything else, there's no need for us to agree with the unions on that, and that is gone at history.
Okay. And then we are moving to your question, Johannes, with regard to pushing the cash-out to '21. Of course, our major target is to move our cash-out in future because we want to bring that into consideration with our booking development that we have this in parallel. In the amount of money we are talking about, it's by far less than EUR 1 billion. And topic-wise, we have just discussed the deferral of the tax payments, and we have monetized some FX hedges, but overall, it's a triple-digit million number.
Just one follow-up on that one, please. The -- I think on Slide 10, you show net CapEx in Q3 only at some EUR 23 million, so almost nothing. Can you -- I mean, how much of the CapEx will then fall into Q4 and also again in 2021?
With regard to the CapEx, that number was that low because we have a 100% stoppage of all projects. And we -- as Carsten Spohr already mentioned, we could use prepayments within Boeing for getting our 777 aircraft. And that was the reason why the net CapEx was so low on one hand. And on the other hand, we are starting to sell some spare parts, especially in the Technik, where we were able to reduce our net CapEx overall. For the upcoming year, we are expecting roughly EUR 100 million to EUR 200 million additional CapEx.
Johannes, keep in mind that our external guidance for CapEx is on gross CapEx, right? And what you see on Slide #10, that's net CapEx.
Next question is from the line of Neil Glynn from Crédit Suisse.
Just 2 for me, please. The first one, Carsten mentioned earlier working with United on testing in airports. Just thinking about long-haul capacity restoration, I mean, how you eventually make decisions. Just interested, to what extent will this be agreed with JV partners, whether it's on the transatlantic or eastwards, producing maybe a more cautious capacity add-back than otherwise as you can serve the same demand more efficiently? Or might you be in a greater hurry to store as full as scheduled as possible than that question might suggest?And then the second question, just on management replacement. We've obviously had some Executive Board departures this year. Thomas [indiscernible] he's obviously leaving at the end of the year. [indiscernible] how high of the priority list is a new CFO is a replacement for [ Dorsen ], for example? And how do you think of [ finding ] and looking internally versus externally [indiscernible]?[ If you could give ] color on that.
Neil, could you go on mute? Thanks. If I got your first question right, I mean, the speed of recovery, the speed of introduction of testing, I mean, all that mainly depends on the governments. We have been talking to the White House and the Homeland Security guys in Washington and, of course, our German counterparts for months now to open up that bubble between the U.S. and Germany. It was obvious, nothing will happen before the election, but I think there's a strong interest on both sides of the Atlantic to reopen that channel. And let's not forget, without leaving the subject, this Transatlantic relationship, which, one way or another, whatever happens in the next hours, I think needs refinement and needs people to travel back and forth. So I think whatever will come now from the U.S. in the next days or hours, I think that Transatlantic cannot be frozen as it has been now for months. So if we want to revitalize that relationship to the U.S., and I hope that is another push for -- especially in that market, pushing testing into opening up. If that was your question, good. If not, please come back because I wasn't quite sure if I got that right.On the management changes, yes, there is a few. But if you have interest in looking for a job, I need to tell you that major decisions are already made or about to be made and will be communicated soon. And also, I think happy to say that this is my last Q3 -- or my last Q, not Q3, my last quarterly results conference without a full-time CFO on my side. So I expect the person to be on board for the next call, which we're all going to be having with you next year.
The lucky position of having maybe worked through this period and the skies are open again or at least semi-open. As you actually plan capacity, and I assume, to your point earlier, you'll clearly be focused on cash flow generation, I assume, rather than just racing to restore as for the long-haul schedule as possible, just interested in your thoughts, how you work with your partners to perhaps manage capacity restoration more cautiously to maximize cash flow rather than making decisions on a stand-alone basis to simply get all of your planes flying again.
Well, there is no push for us to get our planes flying again. As you know, we have taken many, many airplanes out. The largest airplane across the fleet, 380s, 346 and 744s are going out. So this is not a company pushing to restore the whole network as quickly as possible. It's all about cash optimization. This includes those markets where we are allowed to talk to our partners.We're in a lucky position -- or not lucky because we worked hard for it, but in a good position that in all major intercontinental markets, we have joint venture partners and are allowed to talk capacity, both U.S., Canada, China and Singapore and Japan. So it's basically 5 markets if you want to split Canada and the U.S. So we are in talks with all these partners, and we're looking for a similar optimization of cash contribution and we slowly bring up the capacity.But don't forget, on long range, a lot is now driven by Cargo. Our long range network is, to a certain degree, driven by the belly revenues where we have flights, where we even don't open up for passengers like Swiss is doing. Or in the case of Lufthansa, we sometimes have only 30, 40 passengers onboard but will break even to 0 to make that slight cash positive because of the Cargo contribution. So if that answers your question now, we are cash optimizing our ramp-up on the long range very carefully.
Next question is from the line of Andrew Lobbenberg from HSBC.
I wanted to ask about the difficulty of getting the union to engage because you commented today that it was going slower than you'd hope, which was the case at Q2. And how does that interrelate with basically the answer that you gave to Daniel's first question, which was exuding confidence about the liquidity? So I mean, just how do you get unions to engage with a sense of urgency when you're [ expelling ] the liquidity security of the business?And then as the second question, can you talk about the potential opportunity for the Cargo business around vaccines? So is that a great potential? Or is that too complicated and specialized a business to be relevant?
Yes, Andrew, on that first question on union, so that probably is another surprising answer, another but surprising. There is no such thing as urgency because of -- we talk about Germany, also proved in a certain way for Austria and Switzerland, by the way, and Belgium. So we are luckily operating in 4 whole markets. But let's talk about Germany more focused, where we have a short-time system by the government, which basically takes away their urgency. And that's the exact political world behind this system. This short-time work scheme is intended to take urgency away from both sides, from the unions and from the employers in a crisis like this. So the government is paying the majority of the salaries of our unrequired people at the time, pilots, check-in staff, mechanics, flight attendants. And this was extended by the German government to the end of '21. So basically, whatever we do between now and the end of '21 is -- with the unions is not that great an impact because it's not needed, and the impact is already there.The bigger question comes after that short-time scheme, which will be beginning of '22. And that, of course, is after these agreements and legal procedures I just explained, which we are enforcing with the workers' council. So within '21, either with an agreement with the union or if we don't have one, which I don't think, we'll have this legal proceeding we are preparing with the workers' councils that we can still dismiss people even without an agreement with the union. Of course, unions know that just as well as I do. So there is a joint interest to find solutions, especially after December '21. But the urgency in terms of liquidity is not really there because the liquidity we are optimizing right now with our short-term schemes is much higher than anything you could ever get from a union, and who would want to take the government money in any country if you have it for your availability. It's complicated, I know, both the 2-tier systems explained and the German scheme on the short term, but I think that drives our negotiations and basically is also the reason why we are not that in an urgency, and surely, the unions are not -- or some people from the outside probably expect.On the pharma business, in Cargo, indeed, since many years, the so-called cooling business, which is mainly pharmaceuticals, is a big high-yield business for Cargo, and there's only a few airlines in the world who have a network to provide to door-to-door cooling of cargo products, and Lufthansa Cargo is leading in that. So as sad as it is, this crisis and, of course, the need for vaccination, once it's there, this will be a bigger business for Lufthansa Cargo because not even all cargo and the airlines in the world or cargo hubs can participate. We have now, I think, 35 destinations around the world already equipped for cooling products. Munich just added because it was initially only Frankfurt in Germany. And this probably will be done by only a few carriers to a large degree, and we are one of them. And actually, the other big one in the world is Swiss WorldCargo.
Next question is from the line of Carolina Dores from Morgan Stanley.
I have 3. One on your employee expenses, how much have you benefit from furlough, meaning how much employee expenses would have been higher if you weren't using these government programs?My second question is in regard to the pensions and liabilities, which I appreciate is going up because of the declining interest rates. But with the restructuring of the business and with the reduction of employees, should we expect a -- increasing the cash-out coming from these liabilities and by how much?And my final question is, when you expect to -- and appreciate it, but when you say by 50% of capacity you're going to be free cash flow neutral, what is the assumption on evolution of yields and on the slot rules or the waiver of the slots rules for next year?
On the first question, on the German -- or not the German, on the European schemes on short-term support, 50% of our savings on personnel costs are coming from these short-term schemes. And the other 50% are coming from reduced overtime, no bonus payments, wherever. So things we have in the contract already. And again, the other half comes from the European, in our case, German, Swiss, Austrian, Belgium, short-term schemes from the government.When it comes to restructurings, we're going to be seeing provisions in the fourth quarter, as we announced today of '20, but the cash-out will only happen in '21.And the third questions on the waiver of -- was it travel routes or slots?
I think that was assumptions on yields and potential prolongation of the account slot waiver.
Yes, slot waiver. I've been answering this question the same way in our full year and with more context in Brussels and Berlin and [ Bian ] and Vienna. We all know there's a huge environmental discussion out there. How can governments not give us a slot waiver and force us to do ghost flights? I don't think that will happen. So I'm clearly expecting the slot waiver to be extended. And that, I think, is the right thing for the industry, for airports, for airlines, surely for the environment. So I expect that to be going on until we see somewhat of a normal aviation volumes returning.
I think it does. Otherwise, Carol, just give us a shout after the call. This was actually the last question as part of the analyst Q&A. We'll now turn the call to German language, and we invite the press to ask their questions. I'll hand over to Andreas Bartels.[Foreign Language]