Germany Saves Lufthansa from Crashing; Agrees $9.8B Rescue Package

Lufthansa, Europe's second-largest airlines, has experienced severe financial fallout from travel bans, with 95% of its fleet currently grounded.

Germany's national carrier Lufthansa on Monday said that the country's new Economic Stabilization Fund (WSF) has approved a 9 billion euro ($9.8 billion) stabilization package for the airlines. The deal is intended to bailout the airlines which has been hit hard owing to the Covid-19 pandemic.

Lufthansa has been trying to strike a deal with the German government for quite some time now as losses continue to mount on the airline due to the coronavirus outbreak that has brought air travel to almost a standstill. Not only Lufthansa, a number of big airlines have been feeling the heat of the coronavirus and have now turned to the respective governments to bail them out.

Big Relief for Lufthansa

Under the deal, the government will buy a 20% stake in Lufthansa Pixabay

The German government and Lufthansa reached a much-anticipated agreement on a state bailout of the airline. Lufthansa is expected to find the $9.8 billion rescue package quite substantial to come out of the crisis. The bailout comprises an equity injection from the government, which will take a 20 per cent stake by buying new shares at the nominal value of 2.56 euros per share or a total of around 300 euros.

The WSF is likely to sell off its shareholding by the end of 2023. Separately, Lufthansa will get a 3 billion euro loan from state-backed bank KfW. Also, WSF will be giving a capital of 5.7 billion euros separately in the form of silent stake.

This amount will be unlimited in duration and Lufthansa can terminate it on a quarterly basis in whole or in part. The government can swap an additional 5 per cent of this silent stake into equity stake if Lufthansa fails to pay the coupon or Germany moves to protect the airline against a takeover. The deal now needs to be approved by Lufthansa's board as well as various governing bodies including the European Union.

Temporary Relief for Lufthansa

Lufthansa cancels almost 900 flights as pilots' strike continues
Planes stand on the tarmac during a pilots strike of German airline Lufthansa at Frankfurt airport, Germany, November 23, 2016. Reuters

Much like other major airlines Lufthansa too has been bleeding due to the coronavirus pandemic which has brought air travel to a standstill over the past three months. The airline sought for state aid last month but things somewhat got delayed.

Last week, Lufthansa announced that it was in the "advanced stage" of talks with German government officials regarding a bailout worth €9 billion ($9.9 billion) that would give the government a 20 per cent stake in the company. It also said the conditions of the bailout were likely to include "the waiver of future dividend payments and restrictions on management remuneration."

In April, the airline group said that losing 1 million euros every hour due to flight cancellations owing to the coronavirus pandemic. Lufthansa's CEO Carsten Spohr has said the company has 100 more aircrafts than it currently needs. This could further put 10,000 jobs at risk.

Lufthansa plans to double the number of its active planes to around 160 over the next few days as countries start lifting lockdowns. Even then around 760 of its planes will continue to remain grounded as the situation is far from getting normalized.

Related topics : Coronavirus