Lufthansa is reportedly on the brink of bankruptcy as negotiations continue with the German government for a €9 billion bailout.
Chief executive Carsten Spohr and Chancellor Angela Merkel entered talks last week after the airline reported a €1.2 billion operating loss in the first quarter of 2020.
If the bailout talks fail, Lufthansa is reportedly also examining self-administered bankruptcy as an alternative.
Lufthansa will potentially be considering a court protection as a last resort, which would essentially shield the airline from creditors for three months while restructuring finances and management.
For the airline to receive the protection, it will need to be approved by a court and an application submitted before the company is no longer liable to pay bills.
It is expected that any state aid bailout would come with strings attached giving the German government a position on the board and possibly a blocking minority.
Reuters has reported that CEO Spohr has flagged concerns about governments getting too involved in airlines. He worries that should Berlin begin to exert too much influence over Lufthansa, then other governments of the airlines in the group could seek to hop in too.
With subsidiaries in Austria, Switzerland and Belgium plus hubs in the German federal states of Hesse and Bavaria, Spohr is concerned that the future competitiveness of Lufthansa could be damaged.
Reportedly, the bailout funding would come in the form of a capital increase and loans, which would have relatively high-interest rates attached at 9 per cent.
This type of bankruptcy scheme has the ability to act as a ‘protective shield’ allowing management to undertake a restructuring of the business while giving it safeguards against its creditors.
It is being reported that the government is keen to supply the bailout funding but Spohr is holding out due to the attached conditions that could affect the competitiveness of the airline into the future.
The Financial Times has reported that the airline is burning through $1.6 million per hour leaving the airline no option but to also seek support from its subsidiary hubs in Vienna, Bern and Brussels.
Lufthansa is currently only flying 1 per cent of passengers compared with last year in Europe, with 100 aircraft idle and 10,000 staff at risk of losing their jobs or being stood down.