Germany Approves Lufthansa Bailout

  • In exchange for €9 billion, the German government will become Lufthansa's largest shareholder.
  • The move caused tension within the governing Grand Coalition.
  • Lufthansa called for a quick decision on the planned financial aid, and had given the message that the company was facing the threat of bankruptcy.

It was announced that the German state would provide airliner Lufthansa with €9 billion in funds and take over 20 percent of the company’s shares, which are facing the threat of bankruptcy due to the coronavirus crisis. This was announced after several weeks of negotiations and discussions about the content of the rescue package.

Deutsche Lufthansa AG is the flag carrier and largest German airline which, when combined with its subsidiaries, is also the largest airline in Europe in terms of passengers carried. The name of the company is derived from the German word Luft meaning “air” and Hansa for the Hanseatic League.

A decision was made Monday on the fate of Lufthansa, Germany’s largest airline company. According to the statement, made by the Ministry of Finance, a consensus was reached on a comprehensive package at the meeting of the state-owned Economic Stability Fund management.

Accordingly, the volume of the rescue package is expected to reach €9 billion, and the share of the state will be 20 percent, making the German government Lufthansa’s largest shareholder. It was also noted that in exceptional cases, such as when Lufthansa faces the threat of acquisition by another company, this stock could be increased by 5 percent.

According to the compromise, the state will not interfere with Lufthansa’s critical decisions. Whether the share of the state to take over will exceed the critical threshold of 25 percent was a matter of debate. A 25 percent stake meant that the state could block important strategic decisions about the company. According to the compromise achieved, Lufthansa’s requirement to renew its fleet was also introduced to reduce emissions.

Approval Process

Under the management of the Economic Stability Fund, which was created by the state to become a shareholder of important companies during the coronavirus emergency, there are representatives from various ministries, especially the Ministry of Finance. Now that the Economic Stability Fund management has approved the bailout package, the package must also receive approval from Lufthansa’s relevant boards and the European Commission.

The ongoing COVID-19 pandemic spread to Germany on 27 January 2020, when the first case was confirmed and contained near Munich, Bavaria. As of 24 May 2020, Germany has reported 180,328 cases, 8,367 deaths and approximately 160,300 recoveries.

The state’s participation in the company must also take place in line with EU rules. According to such rules, state involvement must be of a temporary character, and the state must provide an exit strategy for a return to normal. German Chancellor Angela Merkel said on Wednesday that a decision will be reached “shortly” in the rescue package negotiations for Lufthansa.

Percentage of Shares a Point of Debate

The size of the state’s weight in company management sparked controversy within the government. Large segments of the center-right Christian Democratic Union (CDU) had expressed their views on silent state participation, and warned that this would mean “partial nationalization.” Their coalition partner, the center-left Social Democratic Party (SPD) argued that the government should have more say in Lufthansa in exchange for state aid.

The Risk of Bankruptcy

In a statement last Tuesday, Lufthansa called for a quick decision on the planned financial aid, and had given the message that the company was facing the threat of bankruptcy. Germany’s largest airline company was able to reach only 1 percent of the number of passengers carried in the previous year in April and May this year.

It is stated that the company’s monthly loss of €800 million was due to the coronavirus crisis. The company also applied to the governments of Austria, Switzerland, and Belgium, where it has other subsidiaries.

Only $1/click

Submit Your Ad Here

Benedict Kasigara

I have been working as a freelance editor/writer since 2006. My specialist subject is film and television having worked for over 10 years from 2005 during which time I was the editor of the BFI Film and Television.

Leave a Reply