Lufthansa is to receive a rescue package worth a total of €9bn from the German government, which will own at least a fifth of the national carrier almost a quarter of a century after it was fully privatised.
The aid, which is subject to approval by the EU and shareholders, will include €3bn in loans via KfW, the country’s state-owned development bank, and will preclude the airline from paying dividends and constrain executive pay.
The country’s Economic Stabilisation Fund, set up to cushion the impact of the Covid-19 pandemic on German businesses, will pay €300m to buy new shares in the Frankfurt-based group at the nominal price of €2.56 a piece, bringing its stake to 20 per cent and diluting existing investors.
The German government has committed not to exercise its voting rights in day-to-day matters, and plans to sell its stake by the end of 2023.
However, Berlin will nominate two people to sit on Lufthansa’s supervisory board.
The fund will also invest a further €5.7bn in the airline, in the form of equity capital which carries an initial coupon of 4 per cent that rises to 9.5 per cent by 2027. The investment can be paid down by Lufthansa in whole or in part on a quarterly basis and gives the German government no further control of the company.
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A portion of that investment can be exchanged for a further 5 per cent of Lufthansa, in the case of the airline missing interest payments, or for 5 per cent plus one share, in order to block any attempts at a hostile takeover.
Europe’s second-largest airline group has been burning through €1m an hour as passenger numbers have slid to just 1 per cent of their usual capacity in the wake of the coronavirus pandemic.
The deal announced on Monday — by far the largest bailout in Germany since the outbreak — must still be ratified by shareholders at an extraordinary general meeting, and be given the green light by the European Commission.
Despite demands from environmental activists and some political parties, it does not impose new carbon emission targets on Lufthansa.
Peter Altmaier, Germany’s economics minister, said: “We have deliberately refrained from imposing conditions beyond the broader sustainability requirement, because our aim is not to have the state determine the company’s day-to-day business strategy.”
Lufthansa, which counts Austrian, Swiss and Eurowings airlines among its subsidiaries, has also been seeking state aid from national governments in Vienna, Bern and Brussels.
Last month, it secured an aid package worth €1.4bn, which will be largely guaranteed by Switzerland’s Federal Council. The funds, which will be secured against Swiss and Edelweiss shares held by Lufthansa, can only be used by those two brands.
Chief executive Carsten Spohr has warned that the group, which made most of its profits from business and long-haul travel, would be permanently smaller as a result of the changes brought about by the Covid-19 pandemic.
After grounding 700 of its fleet of approximately 760 aircraft, Lufthansa is planning to significantly ramp up operations in June, offering flights to 130 destinations by the end of the month, subject to travel restrictions in individual countries.
Additional reporting by Guy Chazan in Berlin and Olaf Storbeck in Frankfurt