Lufthansa bailout: EU, Germany agree ‘compromise’ rescue deal

May 30, 2020

Lufthansa’s supervisory board said in a statement early Saturday it had decided to accept an agreement reached with Germany and the European Union to rescue the struggling German airline. Negotiations had gone on all week and media reported late Friday that a pact had been made.

The Lufthansa group, which includes Brussels, Austrian and Swiss Airlines, has been losing around €1 million ($1.1 million) every hour since the coronavirus pandemic hit Europe, with 90% of its fleet grounded and travel bans still in place across much of the continent.

Lufthansa announced that part of the deal involves ceding take-off and landing rights to competitors at major hubs in Frankfurt and Munich, as well as giving up aircraft to competitors. An extraordinary meeting of the Lufthansa group was planned for the coming days to discuss the restrictions put in place.

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The €9 billion rescue package sees the German government take over 20% of shares in the airline. The deal makes the German government the company’s biggest shareholder. The Lufthansa group and the European Commission’s competition watchdog must still green-light the deal.

Read more: Opinion: Lufthansa bailout shows Germany has learned nothing from the pandemic

‘Compromise’ deal

Lufthansa previously said it would be unable to approve the rescue package over fears that the conditions imposed by the EU would be too harsh. The new deal was described as a “compromise” between the wishes of Germany, the EU and the airline.

The German government said that Lufthansa was profitable before the pandemic, but some have criticized Berlin’s decision to bail out the group.

The deal between Berlin and Brussels took so long to hash out because German Chancellor Angela Merkel was keen to minimize federal control of the group.

The Lufthansa bailout is the biggest by the German government in the wake of the coronavirus pandemic.

Coronavirus: Where the state wants control over airlines

Aid yes, interference no!

Germany is throwing Lufthansa a €9 billion ($9.6 billion) lifeline. The government bailout will give the state a 20% stake in the airline, which could rise to 25% plus one share in the event of a hostile takeover bid as Berlin says it seeks to protect thousands of jobs. Economy Minister Peter Altmaier insists there will be no meddling with corporate decisions.

Coronavirus: Where the state wants control over airlines

Smartwings seeks smart deal

The Czech Republic is seeking more control over flight group Smartwings, the parent company of Czech Airlines. Industry Minister Karel Havlicek said the government could even take over the group completely, but executives replied that no one had expressed any such desire for that to happen as they preferred a state-guaranteed credit line to see the company through the coronavirus crisis.

Coronavirus: Where the state wants control over airlines

TAP-ping into more state funds?

Portugal’s flag carrier TAP has asked for a state-backed loan to secure the survival of the company. Employees want more state control through direct financing, with Prime Minister Antonio Costa raising the possibility of nationalizing the carrier. TAP is already 50% owned by the state with a 45% stake held by Brazilian-US entrepreneur David Neeleman. TAP employees hold the remaining 5% in shares.

Coronavirus: Where the state wants control over airlines

Survival without aid? No(r)way!

Indirect state aid has come to the rescue of Norwegian, Norway’s budget carrier that has completed a painful restructuring process and secured a credit guarantee from the government. Major lessor AerCap now holds a 15.9% stake after converting lease obligations into shares. BOC Aviation holds a vital 12.67% stake in Norwegian — and BOC is ultimately controlled by the state-owned Bank of China.

Coronavirus: Where the state wants control over airlines

Singapore Airlines now Singa-poor?

Earlier this month, Singapore Airlines announced its first-ever annual loss in its 48-year history after grounding most of its fleet due to the pandemic-caused lockdowns. The carrier is already majority-owned by the government investment and holding company Temasek, which holds well over 50% of voting stock. The government has always stressed its non-involvement in the management of the airline.

Coronavirus: Where the state wants control over airlines

The worst in the pack?

Of the government-owned airlines, the Gulf carriers Emirates, Etihad and Qatar have often raised eyebrows among rivals in many parts of the world. The latter have said the airlines in question aren’t really playing fair, saying their business model is to crowd out competing airlines at any (state) cost. Before the pandemic, the three carriers had grown disproportionately for years.

Coronavirus: Where the state wants control over airlines

State control a common ingredient

Aeroflot Group, which includes Russian flag carrier Aeroflot, Rossiya and Pobeda, is another case in point. It is 51.2% state-owned. But you don’t really have to look far to find more airlines in this category. Right now, there are roughly 150 state-owned carriers around the globe, according to Wikipedia. It’s not the rule, though, as there’s an impressive total of about 5,000 airlines globally.

Author: Hardy Graupner