Lufthansa agrees bailout with German government

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The German government and Lufthansa have agreed on a much-anticipated bailout deal to help the airline cope with losses from the coronavirus pandemic, government sources said on Monday.
The deal, thought to be worth up to nine billion euros ($9.8 billion), is yet to be approved by Lufthansa’s supervisory board and the European Commission’s competition watchdog.
Lufthansa is facing the biggest financial crisis in its history due to the coronavirus pandemic, which has grounded around 90 per cent of its planes. At one point the firm was losing about 800 million euros per month.
Passenger traffic ground to a virtual standstill from mid-March, though Lufthansa’s freight business has continued to operate throughout the pandemic.
Government sources said the deal would be “within the framework” of a rescue plan that foresees the airline receiving a bailout totalling some nine billion euros in exchange for a 20-per-cent government-owned stake in the company.
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.

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