Lufthansa launches £500m cash call

GERMAN airline Lufthansa today announced a shock rights issue, raising £500m for a downpayment on its orders for the new 555-seater A380 mega-jumbos being built by Airbus.

But news of the issue, at a 20% discount to Friday's closing price, sent the airline's shares down 5% to e11.52 on the Deutsche Bourse. Stockbrokers cut their ratings on the carrier, saying it 'undermined investor confidence'.

The airline, which owns 30% of Britain's bmi, is raising the cash through a one-for-five offering to existing shareholders, issuing 76m new shares at e9.85.

Company sources confirmed the money raised will go as a deposit on the A380s, which have a catalogue price of $270m (£150m) each. The carrier has 15 A380s on order, to be delivered in 2007, a year after the aircraft makes its first commercial flight.

Lufthansa chief financial officer Karl-Ludwig Kley put a tag of e4.72bn on its commitment to the A380. That is likely to cover potential increased orders as well as additional investment at the airline to deal with the aircraft, which will carry at least 30% more passengers than a Boeing 747.

Broker Merrill Lynch was astounded by the news. Withdrawing its buy advice on the airline, it said: 'We find it difficult to understand the rationale for the issue, given that Lufthansa has the strongest balance sheet in the industry. If anything, investors may have anticipated a return of funds going forward.'

Dresdner Kleinwort Wasserstein and Morgan Stanley are handling the rights issue.