Germany throws Lufthansa a $9.8 billion lifeline, agreeing a bailout which gives Berlin a veto in the event of a hostile bid for the airline.
Germany will climb aboard airline giant Lufthansa as a shareholder in a $9.8 billion rescue if investors and competition authorities agree, as the coronavirus-stricken carrier faces an arduous years-long recovery from the pandemic.
Following the broad strokes of a scheme dangled last week, the economy ministry and Lufthansa said Monday the German government would offer a $3.27 billion loan and $6.2 billion of "silent" capital, as well as buying 20 percent of the company for $327 million.
If Lufthansa faces a hostile takeover, "the economic stabilisation fund (WSF) may also increase its stake to 25 percent plus one share," the company said, which would offer Berlin a blocking minority.
The final deal reflects concerns within the group and among conservative members of Chancellor Angela Merkel's coalition government about excessive, enduring government influence over the former flag carrier.
Lufthansa will commit to repay the state's "silent" capital injection, plus interest, in exchange for the WSF selling its stake on the market by December 31 2023.
"Before the coronavirus pandemic, the company was operatively healthy and profitable and had good prospects for the future," the economy ministry said in a statement justifying the massive support.
If Lufthansa fails to pay interest on the state's capital, Berlin would also be entitled to claim five percent of its shares.
The economy ministry said the deal included "far-reaching limits on pay for board members at the parent company and subsidiaries as well as for management", while Lufthansa spoke of a possible "waiver of future dividend payments".
The group had already suspended its dividend payout for 2019, saying that it needed cash on hand to weather the coronavirus storm.
And the state will also claim two seats on the supervisory board.
Required approvals from Lufthansa's executive and supervisory boards are widely seen as a formality.
That leaves sign-offs from shareholders – who must agree to any plan that would dilute their investments – and competition regulator the European Commission as the two final hurdles for the rescue.
German business daily Handelsblatt reported Monday that Chancellor Merkel plans to resist potential tough conditions from Brussels, which could include Lufthansa giving up prized landing slots at its bases in Munich and Frankfurt.
"At present, the federal government is in intense talks with the Commission," the economy ministry said.
No clear skies ahead
With an effective vaccine and any prospect of snuffing out the pandemic still many months – or even years – off, the airline industry faces a long, slow recovery filled with potential pitfalls.
International Air Transport Association (IATA) chief Alexandre de Juniac told last week that the industry faces the loss of around $314 billion in revenues in 2020 alone, expecting air traffic below pre-crisis levels until 2023.
Lufthansa has warned that the company likely now has 100 planes too many as a result, putting around 10,000 jobs in danger.
A far-reaching restructuring remains on the cards even after Lufthansa at the weekend confirmed reports that it plans to double its active fleet to around 160 aircraft in the coming weeks, adding some of Germans' favourite Mediterranean holiday destinations back onto its much-reduced flight plan.
The majority of its roughly 760 planes will remain grounded as coronavirus restrictions are lifted only gradually.