Lufthansa Hangs in Balance Between German Government and Shareholders

Lufthansa is asking all shareholders to participate in the airline’s “extraordinary general meeting” this week, as its future rides on a government bailout package. While the conglomerate wants the $10 billion in government support, the largest shareholder could prevent that from coming to fruition.

Lufthansa’s future rests in a precarious balance between the airline’s largest shareholder and the German government, as both try to find a way to keep the airline afloat. An emergency meeting between the carrier’s largest shareholder and federal officials took place on Monday, June 22, 2020, to find a compromise in a proposed bailout package.

Showdown Between Largest Stakeholder and Government

The conflict between the airline’s biggest shareholder, German billionaire Heinz-Herman Thiele, and the government date back to May 2020. On May 25, the state approved a bailout for the flag carrier valued at nearly $10 billion after the novel Coronavirus outbreak decimated the airline’s profits. In exchange, the German government would receive a 20 percent share of the airline and get two seats on the board. Lufthansa would also be forced to give up takeoff and landing slots at two major airport: Frankfurt Airport (FRA) and Munich Airport (MUC).

However, Thiele is fighting with both the airline and federal officials on the terms of the bailout. According to MarketWatch, the plan would dilute his current 15.1 percent share in the airline and make him the second largest shareholder. Instead of an outright grant, Thiele wants the government to give Lufthansa loans through state-owned bank KFW.

Thiele also warned that government interference could prevent the carrier from making business decisions about employment and cost-savings measures. According to Barron’s, Thiele argued a government stake could prevent Lufthansa from considering all restructuring options, including job cuts.

Lufthansa Warns Vote Could Force Bankruptcy

Although both Lufthansa and the German government have approved the bailout package, it also requires the approval of shareholders. Because the “extraordinary general meeting” of shareholders scheduled for Thursday, June 25, is expected to attract less than half of shareholders, a two-thirds majority would be required to pass the proposal. If they don’t get it, the conglomerate warns the next step could be bankruptcy.

“In view of the latest public statements by the Company’s largest single shareholder, Heinz-Hermann Thiele, the Board considers it possible that the stabilization package could fail to achieve the two-thirds majority of votes cast that would be required in this case,” Lufthansa noted in a press release. “This would mean that Deutsche Lufthansa AG would possibly have to apply for protective shield proceedings under insolvency law a few days after the Annual General Meeting if no other solution is found immediately.”

The airline sent an urgent “appeal to all private and institutional shareholders to exercise their voting rights and…participate in the decision about the future of the company.”

Analysts Predict Three Outcomes for Thursday Meeting

Even though Lufthansa’s largest shareholder will come to the table with both the airline and government over the bailout package, a decision is far from secure. According to Citi, analysts foresee three different outcomes for Thursday’s shareholder meeting.

The first scenario sees Thiele supporting the bailout package, and using his influence to get the package to pass. The second scenario could see the government withdraw their bailout package, dropping their 20 percent stake in the carrier. Finally, the vote would fall short of the two-thirds shareholders needed to pass the package, allowing Thiele to increase his stake in the carrier.

Analysts watching the proceedings warn that letting Lufthansa fall into bankruptcy would hurt everyone. Although airline insolvency could prevent the airline from refunding cancelled flights and restructure, the bigger picture could create major complications for all involved.