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Lufthansa still wary of bailout conditions

written by Dylan Nicholson | May 28, 2020

Lufthansa’s supervisory board has met to discuss the European Commission’s conditions placed on a potential government bailout loan.

Lufthansa’s board was expected to approve the conditions for its hard-won loan from the German government. The sanctions imposed by the European Commission have resulted in the airline refusing to accept the deal and has said it will not call an extraordinary general meeting just yet.

The board concluded that it needed more time to review the requirements set by the European Commission and would not approve them as promptly as expected. The key issue surrounds the airline having to waive the landing rights for six of its 300 slots at Frankfurt and Munich airports.

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Lufthansa said the conditions would “lead to a weakening of the hub function at Lufthansa’s home airports.” It also claimed that “the resulting economic impact on the company” needed more analysis.

Despite this wariness, the airline still looks set to accept the deal, stating it still sees the loan as “the only viable alternative for maintaining solvency”.

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

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.

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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.

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