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Berlin-Brussels agreement on the conditions for the rescue of Lufthansa

Part of the Lufthansa fleet in Munich on May 26, 2020. – Matthias Schrader / AP / SIPA

Lufthansa has just passed a crucial new stage in its survival. On Friday, the German government and the European Commission agreed on the conditions for the € 9 billion bailout of the airline giant.

Leave more room for competition

To avoid bankruptcy, Lufthansa will notably have to leave more room for competition at its two main German airports. The compromise provides for the group to sell up to 24 take-off and landing slots, very coveted and precious rights for companies, representing 8 aircraft parked. These rights, shared equally at the airports of Frankfurt and Munich, will be reserved for “new competitors” for a year and a half before companies already present in these two cities can buy them if they are still available. “The slots should only be taken over by a European competitor who has not himself received public aid due to the coronavirus pandemic,” said the German group.

To ratify the agreement, an extraordinary general meeting of shareholders must be convened “soon”. They must indeed approve the rescue because it involves an increase in capital. But time is running out as the pandemic has brought global air transport to a virtual standstill. The German group’s cash reserves, which are losing a million euros an hour and currently only transporting 1% of the usual number of passengers, are only enough for a few weeks. He also doesn’t expect a quick reboot. It therefore launched a restructuring aimed at reducing its fleet of 100 planes, threatening around 10,000 jobs.

In addition, negotiations are continuing for the Belgian subsidiary Brussels Airlines, which announced in mid-May plans to cut a quarter of its workforce, and Austrian Airlines, which has asked Austria for 767 million euros. Finally, Berne will guarantee 1.2 billion euros in loans to the Swiss and Edelweiss subsidiaries.

The German State enters the capital

In total, the bailout provides that the state will take 20% of the group for 300 million euros, in addition to injecting 5.7 billion euros in non-voting funds, of which a billion can be converted into shares. It would be the first time that the German state would return to the capital of the company since its complete privatization in 1997. Berlin also reserves the right to increase its stake to 25% and one share, the blocking minority, but only “In the event of a third party takeover bid” or non-payment of interest.

Germany also guarantees a loan of 3 billion euros and obtains two seats on the supervisory board of Lufthansa, which is prohibited from paying dividends and paying bonuses to its directors.

Nothing has yet been completely won for the airline. Ryanair has already announced plans to challenge the plan before European justice, calling it “illegal state aid that will dramatically distort competition.”

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