Lufthansa agrees bailout with German government

The bailout comprises an equity injection by the government, which will take a 20% stake by buying new shares

The German government and Lufthansa have agreed on a much-anticipated bailout deal to help the airline cope with losses from the coronavirus pandemic, Germany’s flagship carrier announced on Monday. The €9bn ($9.80bn) stabilisation package has been already approved by Lufthansa's Executive Board, though the bailout still need consent from shareholders as well as the European Commission.

The bailout comprises an equity injection by the government, which will take a 20% stake by buying new shares at the nominal value of €2.56 apiece or for a total of about €300m. The WSF plans to sell its shareholding by end-2023.

Separately, the WSF will make a capital contribution of €5.7bn in the form of a so-called silent stake, which is unlimited in duration and can be terminated by company on a quarterly basis in whole or in part. A part of that silent stake can be swapped into an additional 5% equity stake if Lufthansa does not pay the coupon or Germany moves to protect Lufthansa against a takeover. The coupon on the silent participation starts with 4% and rises to 9.5% by 2027.

Lufthansa is facing the biggest financial crisis in its history due to the pandemic, which has grounded around 90% of its planes. At one point the firm was losing about €800m per month.

The proposed deal was put forward by a government committee set up under legislation enacted in March establishing a fund designed to stabilise the economy. A key point in the talks held behind closed doors in recent weeks is that a government stake of this size would not give it a majority vote capable of blocking key decisions taken by Lufthansa management.

Another major issue is the status of some 138,000 employed by the airline and its many subsidiaries, which include Austrian, Brussels, Eurowings, Swiss and others, along with Lufthansa Cargo.

Chancellor Angela Merkel said last week that the government was in "intensive talks" not only with Lufthansa but also with the European Commission.

Among the conditions likely to be set by competition authorities is the existence of an "exit strategy" for state involvement in the airline. According to reports by the business daily Handelsblatt, Merkel intends to oppose any attempt by the European Commission to deprive Lufthansa of take off and landing slots in return for the large state rescue package being negotiated.

According to the report, the EU competition authorities plans to take slots away from the airline, Europe's second-largest by passenger numbers, at its main hubs of Frankfurt and Munich. Politicians from Merkel's Christian Democratic Union (CDU) confirmed this to dpa. Merkel is reported to have said: "This will be a hard struggle."

EU Commission watchdog authorities did not want to comment on whether their approval of the German government taking stock in Lufthansa would be subject to special conditions.

"EU state aid rules enable member states to support companies affected by the outbreak, including those active in the aviation sector," said a spokeswoman.

The Commission has recently eased the rules for state aid in light of the coronavirus pandemic, but it is continuing to monitor for any disproportionate help that could disrupt competition in the internal market.

A general condition, for example, would be that aid paid for with taxpayer money is sufficiently compensated.

More on this subject: Coronavirus

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