Lufthansa and German Government Agree on $9.8 Billion Rescue Package

By Reuters
May 25, 2020Business News
Lufthansa and German Government Agree on $9.8 Billion Rescue Package
A Lufthansa Airbus A320 takes off at the aircraft builder's headquarters in Colomiers near Toulouse, France on Sept. 27, 2019. (Regis Duvignau/Reuters)

FRANKFURT/BERLIN—The German government and Lufthansa, which has been hit hard by the CCP virus pandemic, have reached a preliminary deal on a 9 billion euro ($9.8 billion) bailout.

The airline has been in talks with Berlin for weeks over aid to help it to cope with what is expected to be a protracted travel slump, but the carrier has been wrangling over how much control to yield in return for support.

The German Finance and Economy Ministries on May 25 said Lufthansa was an operationally healthy company before the CCP (Chinese Communist Party) virus outbreak, was profitable, and had good prospects for the future but had got into trouble because of the pandemic.

Rivals such as Franco-Dutch group Air France-KLM and U.S. carriers American Airlines, United Airlines, and Delta Air Lines have also sought state aid.

Shares in the company were up 5.5 percent at 8.48 euros by 1507 GMT.

Lufthansa said that conditions of the deal include the waiver of future dividend payments and limits on management pay. The government will also fill two seats on the supervisory board, one of which is to become a member of the audit committee.

The plan includes Germany taking a 20 percent stake in Lufthansa, which it plans to sell by the end of 2023. Germany will buy the new shares at the nominal value of 2.56 euros apiece for a total of about 300 million euros.

Finance Minister Olaf Scholz said the rescue package was a “very, very good solution” that takes into account the needs of both the company and taxpayers.

“The support that we’re preparing here is for a limited period,” he said.

“When the company is fit again, the state will sell its stake and hopefully … with a small profit that puts us into a position to finance the many, many requirements which we have to meet now, not only at this company.”

The government will also inject 5.7 billion euros in non-voting capital, dubbed silent participation, into the company. Part of this could be converted into an additional 5 percent equity stake, either if coupon payments are missed or to protect the company against a takeover.

The silent participation will carry a coupon of 4 percent in 2020 and 2021, increasing to 9.5 percent by 2027 to encourage fast repayment.

Separately, Lufthansa will receive a 3 billion euro loan from state-backed bank KfW and private banks with a term of three years.

The bailout deal is still pending approval by shareholders as well as the European Commission.

The company and the competition watchdog are still discussing which slots at which airports Lufthansa will have to waive as a remedy to ensure the bailout does not hamper competition, a person close to the matter said.

“Scrutiny is extremely thorough as it is the first large equity-based bailout in the pandemic,” the source said.

According to business daily Handelsblatt, German chancellor Angela Merkel said that Germany would fight for remedies not being too stringent.

By Arno Schuetze and Christian Kraemer

NTD staff contributed to this report. 

ntd newsletter icon
Sign up for NTD Daily
What you need to know, summarized in one email.
Stay informed with accurate news you can trust.
By registering for the newsletter, you agree to the Privacy Policy.