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Lufthansa calls force majeure on jet supply contracts due to COVID-19: sources

Highlights

Airline group has grounded 700 of its 763 aircraft

Jet fuel going into storage as demand collapses

London — German airline Lufthansa Group has declared force majeure on its jet fuel supply contacts, according to sources close to the matter, as more and more airlines cancel flights in the face of the coronavirus pandemic.

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Some of the world's biggest airlines are slashing more than 70% of their flights for the coming months, and jet fuel demand, which accounts for almost 8% of total oil demand, is taking the hit.

Lufthansa has had to invoke force majeure on the supply contracts as it has grounded 700 out of its fleet of 763 aircraft, the sources said.

Lufthansa Group, which comprises European airlines Lufthansa, Eurowings, Swiss International Air Line, Brussels Airlines and Austrian Airlines, was not available for comment.

Lufthansa CEO Carsten Spohr had said Wednesday that coronavirus had "placed the entire global economy and the company in an unprecedented state of emergency".

"At present, no one can foresee the consequences. We have to counter this extraordinary situation with drastic and sometimes painful measures. At the same time, we must live up to the special responsibility that airlines bear in their home countries," Spohr said.

Jet supply

Jet fuel traders were looking to put more material into storage to cope with the lack of prompt demand, as the whole supply chain is under stress.

Trading sources said a number of European airlines were either reselling some of their storage barrels as storage was already quite full due to the flight cancellations.

"They [most airlines] have managed well. They have resold barrels in March, and reduced their nominations and canceled future deliveries," a Europe-based jet fuel trader said.

Sources said more airlines were likely to invoke force majeure on supply deals.

"We have sorted it [supply] out with our suppliers. It is a force majeure-like situation but we have not formally declared force majeure," a trader for a European airline said. "We have enough jet fuel for the next period, around a couple months."

The jet fuel market has crashed in the past month amid demand destruction as the coronavirus outbreak has spread fast globally.

More and more refiners are blending jet fuel into diesel to cope with the lack of demand.

Last week, the International Air Transport Association sounded the alarm, saying many airlines were under severe cash flow pressure due to extraordinary travel restrictions caused by the coronavirus pandemic.

This week, Ryanair, the world's largest budget airline, said it had to cancel up to 80% of its flights for April and May, adding that a "full grounding of the fleet cannot be ruled out".