Germany Is Close To Bailing Out Lufthansa According To Merkel

After weeks of intense talks, Lufthansa is closing in on a $9.9 billion bailout deal from the German government. The deal would mean that the state would become the airline’s biggest shareholder, something that has been a sticking point throughout the negotiations.

Lufthansa plane sunset getty images
Lufthansa is close to securing a bailout package. Photo: Getty Images

Lufthansa’s $9.9bn rescue package within reach

In a report by Bloomberg, Lufthansa confirmed that talks with Germany’s Economic Stabilisation Fund (Wirtschaftsstabilisierungsfonds, or WSF) were at an advanced stage. Late on Wednesday in Berlin, German Chancellor, Angela Merkel said,

“A decision can be expected shortly.”

She added that intensive talks were continuing between the government, the airline, and the European Commission, which would also need to approve the deal. Mrs Merkel wouldn’t give details of the talks, giving the advice to,

“. . . wait for the talks to end.”

The negotiations are going to the final vote by the federal government. Once Lufthansa receives the result, the airline’s shareholders will have two days to approve the deal. The EU Commission would need to see a clear exit strategy from the government before it approves the outcome.

Angela Merkel holds Lufthansa plane model
Angela Merkel says that “a decision can be expected shortly.” Photo: Getty Images

Details of the bailout package

The German newspaper, Handelsblatt, said that the $9.9bn (€9bn) bailout package would involve a three-stage model. The first stage is to secure Lufthansa’s liquidity with a $3.3bn loan from the KfW state bank.

The WSF will get a 20% stake in the airline, along with a convertible bond equivalent to an additional 5% plus one share of the company’s increased capital. This would give the government a blocking minority at annual general meetings, but this veto is only intended to be used in the event of hostile takeover attempts.

In addition, two new seats on the supervisory board will represent the government. However, they should not be politicians or civil servants but entrepreneurs.

Simple Flying reached out to Lufthansa for comment, but none had been received at the time of publication.

Many of Lufthansa’s aircraft will remain grounded during the slow recovery. Photo: Getty Images.

Lufthansa plans for a slow recovery

The COVID-19 pandemic has hit Lufthansa hard, as with every other airline. The company doesn’t expect any kind of normality to return until 2023. It is planning for a staged reintroduction of services over the next three years as travel restrictions are lifted.

In a letter to its employees, Lufthansa gave details of its projected fleet reductions during the slow recovery from the current crisis. The board anticipates that 300 aircraft are likely to stay grounded next year, while 200 could remain out of service in 2022.

Once the industry returns to “normal,” the airline predicts that its fleet will be reduced by around 100 aircraft from its pre-coronavirus level of approximately 760 aircraft.

Seven of Lufthansa’s A380s have already been sent to a Spanish aircraft graveyard and are unlikely to be recommissioned. With reduced passenger numbers for the foreseeable future, the airline may consider the early retirement of all of its A380s.

On a brighter note, the Lufthansa Group announced earlier this month that, with its new June timetable, it would be increasing the number of operational aircraft from 80 to 160. As Germany’s lockdown is eased, the airline intends to fly to 106 destinations, mostly within Europe.

What do you think about Lufthansa’s bailout package? Good news for the airline or a future burden? Let us know in the comments.