More details have come out on the heels of LH’s announcement on Saturday that it was suspending service to Venezuela next month.
According to LH sources, it appears that Maduro & Co. (the ‘government’ running VZ) owe Lufthansa over $100 million.
The problem with how the Venezuelans want to conduct business is the fact that LH has to charge in Venezuela’s local currency, the Bolivar, when collecting fares. The problem with it is that Venezuela’s currency policy makes it nearly impossible for a company to repatriate revenue. In this case, LH is stuck with holding Bolivars as the Bolivar market collapses and inflation is forecast to reach upward of 500-600% this year.
In essence this makes the Bolivar worth less than the ‘Kleenex’ that you carry in your bag. LH has no way to convert the money to Dollars or Euros in order to salvage what remains of their capital in Venezuela.
It’s because of this plummeting valuation that LH was forced to suspend service since the Bolivars have in essence become worthless. So much so that I expect LH to write off the $100 million and walk away from the disaster brought upon their balance sheet by Venezuela.