Lufthansa Saved From Collapse By Disputed Government Aid

 - June 25, 2020, 1:33 PM
Late on June 25, Lufthansa got approval for a German government aid package that looks set to save the airline from bankruptcy. [Photo: Lufthansa]

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

Lufthansa is set to avoid bankruptcy by drawing on €9 billion ($10.1 billion) in aid from the German government—€6 billion in fresh capital and a €3 billion state-guaranteed loan—after the group secured formal approval from European Union antitrust regulators and shareholders for the bailout. At an extraordinary general meeting that concluded late on Thursday, 98 percent of voting shareholders approved the move. 

Germany’s Economic Stabilisation Fund will contribute up to €5.7 billion of the funding. In the process, the German government will take a 20 percent stake in the airline through an increase in its capital.

In his plea to shareholders before the vote at today’s meeting, Lufthansa Group CEO Carsten Spohr stressed that state aid was the only way for the integrated aviation group to finance the restart of operations of the largely grounded fleet and establish a “new normal” over the next few years. “We are asking for nothing less than your approval to save the German Lufthansa. The bitter truth is that legal insolvency is looming if we do not agree on this stabilization package,” he said. Lufthansa lost €1.2 billion in the first quarter of 2020 and said last month that it was burning through €1 million in cash every hour.

“The decision by our shareholders provides Lufthansa with a perspective for a successful future,” said Spohr in a media statement. “On behalf of our 138,000 employees, I would like to thank the German federal government and the governments of our other home countries [meaning Germany, Switzerland, Austria, and Belgium, where its various airline divisions are based] for their willingness to stabilize us.” He stressed that the company intends to repay taxpayers as soon as possible.

Gaining enough shareholder support became a contentious issue in the past week because the airline's largest single shareholder, German billionaire Heinz Hermann Thiele, opposed terms of the rescue measures. The 79-year-old entrepreneur, who took advantage of Lufthansa's depressed price to grow his shareholding from 5 percent in March to 15.5 percent, criticized the planned 20 percent government stake, the price at which the government is acquiring the shares, and the influence it could have on the flag carrier, including on restructuring efforts.

Late on June 24, Thiele signaled that he would back the rescue plan as he did not want to be seen as responsible for driving Lufthansa into insolvency. “I will vote for the resolution,” he told the Frankfurter Allgemeine Zeitung newspaper.

On June 25, the European Commission also confirmed that it had approved under the EU’s special coronavirus state aid rules Germany’s plans to contribute €6 billion to the recapitalization of Lufthansa. Conditions for the green light from Brussels, which were already agreed to late last month, require that Lufthansa divest up to 12 daily slots at each of its two main German hubs, Frankfurt and Munich, to allow competing carriers to establish a base of up to four aircraft at each of these airports. For one and a half years, this option is available only to new competitors at the Frankfurt and Munich airports. Other conditions include a ban on dividends, share buybacks, and management bonus payments until the state aid is paid back. In addition, Lufthansa is not allowed to use the funds to buy a stake of more than 10 percent in competitors or other operators.

The group already secured CHF1.5 billion ($1.6 billion) in loans, 85 percent guaranteed by the Swiss government, for its Swiss airline subsidiaries, Swiss and Edelweiss, to help them through the liquidity crisis caused by Covid-19; and it negotiated a €450 million bailout with the Austrian government. The Austrian financing package is contingent on the relevant approvals of Lufthansa’s rescue deal with the German government and the approval of the European Commission. The group is still in talks with the Belgian government over aid for Brussels Airlines.