Lufthansa: To Hedge or Not to Hedge . . . Harvard Case Solution & Analysis

The main German airline, Lufthansa, was undertaking an aggressive growth program. The chairman of the board negotiated a deal with Boeing for the acquisition of 20 new aircraft at a cost of US$500 million. The U.S. dollar was at historically high appreciation rate and he had to determine how much, if any, of the US$500 million purchase price to hedge and best strategy to use.

Since the revenues of Lufthansa were mainly in Deutsche marks and this amount was payable in one year, he needed to establish how to take care of the resulting foreign exchange risk by analyzing principle foreign exchange hedging strategies. Covenants limiting Lufthansa to take on new debt made it critical that he be certain of the financing and risk vulnerability before finalizing the deal.

Publication Date: 02/02/2001

This is just an excerpt. This case is about Finance

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