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Lufthansa finally accepts €9bn government bailout conditions

written by Dylan Nicholson | May 26, 2020

Lufthansa will become a partially state owned airline as it comes to an agreement with the German government over the conditions of its funding under the Economic Stabilisation Fund, or Wirtschaftsstabilisierungsfonds (WSF). The package will provide stabilisation measures and loans to the airline totaling up to €9 billion.

The bailout will be biggest for an airline in Europe exceeding the €7 billion package for Air France.

The airline has confirmed that the coronavirus rescue fund’s steering committee has indeed approved the deal, along with Lufthansa’s board and the European Commission.

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The bailout from the WSF consists of up to €5.7 billion of funding to Lufthansa in the form of ‘silent participation’. This means the WSF will participate in the profit and loss of the airline, but will not engage in third party transactions. It says this participation is unlimited in time and will be reviewed on a quarterly basis.

The WSF will also subscribe to shares in the airline at a price of €2.56 per share. The capital will be increased to build up a 20 per cent share in Lufthansa, which is valued at around €300 million. In the event of a takeover of Lufthansa, the WSF is retaining the right to increase its stake to 25 per cent.

The final part of the deal will see a credit facility provided to Lufthansa up to the value of €3 billion. This will be provided via a syndicate of banks, including state-owned development bank KfW and private banks, over a three-year period.

The airline has been reluctant to accept any deal which involved any form of state ownership but it is likely that the ‘silent partner’ concession may have been enough to allay their concerns along with the deterioration any other options for the airline.

The deal states a clause:

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“Subject to the full repayment of the silent participations by the company and a minimum sale price of €2.56 per share plus an annual interest of 12 per cent, the WSF undertakes, however, to sell its shareholding in full at the market price by 31 December 2023.”

This may mean that the airline may be able to repay the funds as soon as is feasibly possible and to remove the state as a shareholder before 2024.

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