After the EU and the federal government had found a compromise in the struggle to save the airline, the next hurdle has now been overcome – albeit with heavy concessions.
The Federal Government and the EU Commission have agreed on key points in negotiations on a rescue package for the severely battered Lufthansa. During the night, the company announced that the board had decided to accept the compromise. According to this, Lufthansa should give off take-off and landing rights in Frankfurt and Munich.
This means that an important hurdle for state aid has been overcome with a planned federal participation in Lufthansa. The German government wants to support the battered airline, which came under pressure in the Corona crisis, with a nine-billion-euro aid package. Otherwise, Lufthansa threatens to run out of money.
EU Commission called for opening up to competitors
As the airline announced, the scope of the commitments required from the EU Commission has been reduced compared to the first plans. The company is therefore obliged to transfer the stationing of up to four aircraft and up to 24 take-off and landing rights to one competitor at each of the airports in Frankfurt and Munich. Initially, the EU Commission had requested the delivery of 20 jets. Lufthansa had offered to sell 3 aircraft, but the EU Commission had rejected the report.
This option was only available to new competitors at Frankfurt and Munich airports for at least a year and a half. If no new competitor makes use of the option, the option will also be extended to existing competitors at the respective airports. The slots are to be allocated as part of a bidding process – and only to be taken over by a European competitor who has not received any significant state recapitalization due to the corona pandemic.
This could benefit the Irish low-cost airline Ryanair, for example, which wants to get through the crisis without state aid and has criticized the planned entry of the German state into Lufthansa. Ryanair currently flies to Germany’s largest airport, Frankfurt, but is not yet represented in Munich. Conversely, the British low-cost airline Easyjet offers flights from Munich, but has only just withdrawn from Frankfurt.
Rescue package not in dry cloths yet
The Lufthansa Supervisory Board now has to approve the rescue package including the EU requirements. The company then plans to convene an extraordinary general meeting promptly to obtain shareholder approval for the package.
The supervisory board had previously warned that the turnstile function at the home airports of Frankfurt and Munich would be weakened if the circulation was too high. Negotiations have not yet ended with the compromise. Brussels still has to agree to the package. The federal government has to notify it.
The Ministry of Economic Affairs also points out that the agreement is not yet dry: “Incidentally, the talks with the EU Commission on state aid approval are ongoing,” said a statement early Saturday morning. But: “With the intermediate step now achieved, the way is cleared for referral to the Annual General Meeting.”
EU Commission defends conditions
The responsible Vice President of the EU Commission, Margrethe Vestager, defended the Commission’s request for conditions on Friday. It is not about creating additional obstacles, but about preventing distortions of competition.
Vestager explained that the EU Commission is asking Lufthansa to hand over take-off and landing rights in return for state aid, with the importance of slots for competition. “If you want to compete with them, you need slots at an airport,” said the Danish.
The low-cost airline Ryanair had complained of a massive distortion of competition. The billion dollar aid from the German government would further strengthen Lufthansa’s monopoly-like access to the German aviation market, criticized the Irish airline. Ryanair chief Michael O’Leary had announced that he would take action against the state aid.
Corona crisis endangers 138,000 jobs at Lufthansa
Chancellor Angela Merkel (CDU) had announced a “tough fight” in the CDU presidium on Monday, according to participants, because Brussels only wanted to approve the multi-billion dollar rescue under high conditions.
The rescue plan for Lufthansa provides that the state economic stabilization fund (WSF) will subscribe to shares in the course of a capital increase in order to build up a 20 percent stake in the airline’s share capital. An extraordinary general meeting of Lufthansa still has to agree to this. In addition, silent deposits totaling up to EUR 5.7 billion and a loan of up to EUR 3 billion are planned.
Aid is needed for Lufthansa because the corona pandemic has brought the company’s business, with the exception of freight, to a standstill with the following travel restrictions. As a result, tens of thousands of jobs are on the verge in the group with around 138,000 employees.
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