Lufthansa Group Negotiating €9 Billion German Bailout

German carrier Lufthansa is in the midst of negotiations for a government-funded stabilization package for €9 billion ($9.7bn).…

Lufthansa Group Negotiating €9 Billion German Bailout

German carrier Lufthansa is in the midst of negotiations for a government-funded stabilization package for €9 billion ($9.7bn). More specifically, talks are ongoing with Germany’s Federal Economic Stabilization Fund (Wirtschaftsstabilisierungsfonds – WSF) to finance the Lufthansa Group. The news was published today in a press release from the airline group.

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Airlines have increasingly been looking to their home governments for financial assistance to weather the storm. Photo: Getty Images.

Partial government ownership

Seen as a last resort by many airlines, it looks like Lufthansa is evaluating partial government ownership. On the table for discussion is what Lufthansa calls “silent participation” and “a secured loan.” Additionally, a stake by the German government in the company’s share capital is also being discussed.

The airline says that “various alternatives of a capital increase are being discussed,” with one goal being a “25% plus one share” stake in the company by the German government. Furthermore, the WSF is seeking representation within the Supervisory Board. For current shareholders and investors, it appears that one condition of this financial assistance is the waiver of future dividend payments.

Lufthansa, Airbus A320, Grounded
Future dividend payment suspension is one requirement for WSF funding. Photo: Getty Images

“The Executive Board of Deutsche Lufthansa AG is continuing negotiations with the aim of ensuring the future viability of the company for the benefit of its customers and employees.”

Would Lufthansa change?

With as much as 25% government ownership and supervisory board representation, how would Lufthansa change as an airline? It’s obviously difficult to say at this point, especially because governments around the world operate in different ways.

Looking at the case before us with Lufthansa, it’s interesting that “silent participation” is being discussed at the same time as a Supervisory Board position for the WSF. On the surface, it would seem like one negates the other.

However, we can look to Air France and KLM as examples of how partial government ownership has affected operations. Both the French and Dutch governments hold about 14% each of the Air France-KLM Group. But until this crisis, government influence on the airline group appears to be fairly minimal. In general, a government stake in airlines is a move to protect national interests. However, it doesn’t seem like Air France, or KLM has done anything drastic to go against national interests. Thus, their respective governments have been able to limit their overt influence (up until now).

Air France-KLM
French and Dutch governments each own about 14% each of the Air France-KLM Group. Photo: Getty Images

Conclusion

Hopefully, Lufthansa gets the funding that it badly needs to make it through this crisis. The Lufthansa Group, as a whole, has some 700 aircraft not flying. This means that the airline group has practically no earnings and yet, is losing around €1 million ($1.08 million) per hour.

Are you in favor of government intervention? How do you think this would change the airline’s day-to-day operations? Let us know your opinion in the comments.

Simple Flying contacted Lufthansa Group with a request for additional information. At the time of publication, no response has been received. We’ll update this post should we receive anything.

Source : Simple Flying More