Bailouts in the air: Germany’s Lufthansa in talks with government

German airline Lufthansa says it is in advanced talks with the government’s economic stabilisation fund over a rescue deal worth up to 9 billion euros ($9.9bn), including the state taking a 20-percent stake in the company.

Lufthansa said in a statement on Thursday that the deal would involve the government taking two seats on its supervisory board, but only exercising its voting rights as a whole in exceptional cases such as protection against a takeover.

Lufthansa has been in talks with the government for weeks over aid to help it weather the coronavirus pandemic and what is expected to be a protracted travel slump, but it has been wrangling over how much control to yield in return for support.

Lufthansa said it expected conditions of the deal to include the waiver of future dividend payments and limits on management compensation, adding the package would have to be approved by the European Commission.

The concept includes a 3 billion euro ($3.3bn) loan from state-backed bank KfW and a convertible bond, which can be exchanged for a further 5-percent stake plus one share in the event of a public takeover offer by a third party.

Under German law, a 25-percent-plus-one-share stake would enable the government to block motions at the company’s annual general meetings, giving it a veto over major decisions.

Lufthansa said it hoped the deal could be concluded promptly to secure its long-term solvency.

German media had reported late on Wednesday that a deal had been struck and Chancellor Angela Merkel said she expects an agreement on a rescue package soon.

“A decision can be expected shortly,” Merkel said, adding that “intensive talks” were ongoing with the company and the European Commission. She declined to go into details, saying: “I would give the advice: Wait for the talks to end.“

The airline said on May 7 it was negotiating a 9-billion-euro ($9.9bn) bailout with the German government to ensure its future, confirming an earlier Reuters report.

In a letter to employees, the airline warned that cash reserves continued to shrink while it negotiated the rescue package. Lufthansa’s board said it hoped the government would find the “political will” for a deal that would keep the carrier competitive against international airlines.

Cash burn

Lufthansa executives have raised concerns that the terms on offer would hamstring it against international competitors who have received less stringent bailout conditions, a point the management board repeated in the letter. The carrier declined to comment.

Lufthansa is meanwhile running out of time and money, burning through 800 million euros ($877m) each month after the coronavirus grounded most of its fleet. Chief Executive Officer Carsten Spohr said on May 5 that the company had about 4 billion euros ($4.4bn) in cash remaining.

The letter to employees gave further details of Lufthansa’s expected fleet reductions for the coming years. The board said it expected 300 of its aircraft would remain grounded in 2021 as demand for flights recovers slowly, with 200 remaining out of service into 2022.

Lufthansa had previously said it expected its pre-crisis fleet of approximately 760 aircraft to shrink by about 100 once normality returns by roughly 2023, a forecast it stuck to in the letter.

Spohr earlier this month said the airline is in “intense” talks with Airbus SE and Boeing Co about postponing plane deliveries as he set out plans for surviving the coronavirus storm.