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Lufthansa Shareholders Approves German Bailout Plan

Lufthansa Shareholders Approves German Bailout Plan
Joe Cortez

After the German conglomerate’s lead shareholder granted his nod of approval, Lufthansa shareholders overwhelmingly approved a $10 billion bailout lead by the German government. Over 90 percent of shareholders approved the plan, preventing a massive bankruptcy.

Once Lufthansa Group’s largest shareholder gave his support to a government-sponsored bailout package, investors in the airline conglomerate overwhelmingly voted to approve the plan. At an extraordinary shareholder meeting held virtually on June 25, 2020, 98 percent of shareholders approved the support package moving forward.

“We Simply Don’t Have Any Money.”

Opening the extraordinary meeting, Lufthansa board chairman Karl-Ludwig Kley compared the vote to other key historic moments in the airline’s history, including the refoundation of Lufthansa after World War II, and its privatization in 1997. The poetic language quickly stopped when the chair admitted the truth about the airline’s current position.

“We simply don’t have any money,” Kley noted to the group. “We’ve been living off the reserves we’ve been able to amass from good years. Soon, most of it will be gone. Without help, in the next day to come, insolvency is looming. “

Carsten Spohr, chief executive of Lufthansa Group, was next to plea with the shareholders. Noting the situation Lufthansa faces, he asked for their consideration in moving forward with the government bailout plan.

“We are asking for nothing less than for your approval to save German Lufthansa,” he said during the 37-minute presentation. “This situation is very painful for all of us.”

Prior to the meeting, the package’s approval hinged on the airline’s largest shareholder, billionaire Heinz-Herman Thiele. After publicly expressing his objections to the government bailout plan, Thiele met with Lufthansa Group executives and government officials. Prior to the vote, Thiele announced he would support the initiative.

Inside the $10 Billion Bailout Package

During the presentation to shareholders, Spohr outlined the situation created by the COVID-19 pandemic. As of May 2020, the company cancelled 95 percent of flights, received around 95 percent fewer bookings, and had an estimated cash burn of around $67.32 billion in the second quarter of 2020.

Courtesy: Lufthansa Group

In turn, the stabilization package would consist of over $10 billion in cash for the airline. Of that, $5.27 billion is equity in the airline, while $1.12 billion would be held as financial debt, with the option to convert into shares. The 20 percent stake the government would hold in Lufthansa Group would come from a stock sale at the price of $2.87 per share. The remaining $3.37 billion comes as a loan, with a maturity date of three years.

Courtesy: Lufthansa Group

As part of the plan, the German government is putting terms on Lufthansa’s business. They cannot make dividend payments as long as the stabilization package is in place, and the government will receive two seats on the company board. The airline must also invest in decreasing their carbon footprint through emission reduction.

Courtesy: Lufthansa Group

If the stabilization plan is successful, the government will sell their shares of Lufthansa Group by the end of 2023. The company’s goal is to once again be fiscally solvent and earn an investment-grade credit rating.

What Happens Next for Lufthansa

In a press release announcing the news, Lufthansa thanked the shareholders and government for their participation in the bailout. The European Commission approved the bailout plan before the meeting, removing a major hurdle the group would have to overcome.

“The decision of our shareholders provides Lufthansa with a perspective for a successful future,” Spohr said in the press release. “We at Lufthansa are aware of our responsibility to pay back the up to 9 billion euros to the taxpayers as quickly as possible.”

Next week, the airline will publish an updated flight schedule, with the goal of returning to semi-normal operations by the Fall. With the capital push, Lufthansa says they want to resume 90 percent of service to short-haul destinations, and resume 70 percent of long-haul destination service by September 2020.

Despite this plan, it’s still clear if the airline will be forced to reduce their holdings, or spin off other carriers. Prior to the meeting, Lufthansa ended a joint venture with Turkish Airlines, while insiders suggested Brussels Airlines could go up for sale.

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