Lufthansa Wins Shareholder Backing for $10 Billion Bailout Deal

Thursday, June 25, 2020 06:14 PM By William Wilkes and Richard Weiss

• Vote unlocks lifeline backed by sale of 20% stake to Germany
• Airline now faces deep restructuring to survive coronavirus

(Bloomberg) --Deutsch Lufthansa AG won shareholder approval for a 9 billion-euro ($10 billion) bailout from the German government, securing the survival of Europe’s largest airline after weeks of drama over the rescue package.

Over two-thirds of the airline’s shareholders at a special meeting on Thursday voted to approve the plan, according to Chairman Karl-Ludwig Kley.

The bailout, which features the sale of a heavily discounted 20% stake to Chancellor Angela Merkel’s government, hung in the balance until Lufthansa’s biggest shareholder, billionaire Heinz Hermann Thiele, publicly backed it hours before the crunch vote.

Lufthansa plans to execute the sale of shares to Germany for 2.56 euros apiece, about one third of the current market price, in the coming days to unlock the financing. The airline had warned that insolvency threatened soon if the package wasn’t cleared at the online meeting.

Another step forward came earlier Thursday, when European Union regulator approved the bulk of the package in exchange for Lufthansa making some slots available at its Frankfurt and Munich hubs.

The successful shareholder vote not only hands Lufthansa a lifeline but also saves Merkel’s government from a damaging defeat as it seeks to revive the country’s export-led economy. In the process, Germany reasserts itself into the heart of a company that was privatized with fanfare two decades ago.

Bailout Package

• 20% direct stake for about 300 million euros; stake could rise to a blocking minority of 25% plus one share in the event of a takeover
• 5.7 billion euros in so-called silent participation, part of this debt-equity instrument can be converted into a 5% holding if the government isn’t repaid and hasn’t increased its stake already
• 3 billion-euro loan backed by state development bank KfW

Even with the state aid, Lufthansa will need deep restructuring to recover from the pandemic, which all but halted travel around the world. Chief Executive Officer Carsten Spohr has predicted that the airline will face years of depressed demand. The company expects its fleet to be 100 aircraft smaller after the crisis, implying the loss of over 10,000 jobs.

Securing the bailout allows Lufthansa’s management to turn attention to negotiating concessions with the company’s powerful labor unions.

The company reached a deal late Wednesday with cabin crew that would save around 500 million euros through 2023. In return, Lufthansa pledged not to make redundancies for the duration of the coronavirus crisis. A similar deal with pilots is close, Spohr said at the meeting.

Kley said at the meeting that the bailout offers the chance to rebuild its business, saying: “We can do it.”