As Lufthansa looks to raise capital to help its financial situation, the German Government is reportedly looking to get involved. The airline is hoping to sell shares to raise more money, and the government is ready to invest in protecting its current level of ownership. The news comes just one day after Lufthansa said it was hoping to pay back state aid.
Although we reported yesterday that Lufthansa was hoping to pay back state aid received during the pandemic, the German government is still heavily involved in the airlines’ finances. Currently, the government has a 20% stake in the airline, and it is planning to protect that by investing in the capital raise.
According to reports, the government is willing to invest in the planned €3 billion equity raise. Lufthansa is working with both Deutsche Bank and Bank of America to increase its capital later this summer.
The German government is currently planning to be involved in the refinancing process for three reasons. Firstly, by investing and buying more shares, the government can maintain its 20% stake. With more shares issued, other shareholders could dilute the government’s interest. Secondly, with the German government heavily investing, Lufthansa will no doubt get the money it needs. A large chunk of it will likely come from the German government.
Finally, further investment and successful refinancing would signal to the markets and other investors that Lufthansa is well on the road to recovery.
Could this be a new EU commission investigation?
While the logic and legality of the German Government’s actions seem sound, it could still raise a few eyebrows. The German Government is already under fire from Ryanair Boss Michael O’Leary for its €9 billion rescue package last year. O’Leary called the bailout loan “illegal.”
Further aid may cause even more tension and questions not just from O’Leary but also from the EU commission. The aid package already given to the airline was approved by the EU Commission, although Ryanair is appealing this decision.
However, if the government invests money in return for shares to protect its stake in the airline, it isn’t giving the airline another loan. So this may well be a sneaky way for governments to give more financial support to airlines. But only if the airlines are willing to give up some control to governments.
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Addicted to state aid
The Ryanair boss has even gone as far as saying the German carrier is addicted to state aid. The comment came after Lufthansa’s results showed that state aid was keeping it afloat. However, recent weeks have shown positive signs for the carrier.
The airline saw a 300% increase in demand for routes to the US. Additionally, Germany has loosened border restrictions, as has Italy showing that Europe is opening up. For Easter, Germany allowed travel to the islands of Ibiza and Mallorca and to Barcelona. The airline has also seen increased demand for flights to Mexico and the Maldives as people start thinking about summer vacations.
As Lufthansa starts to operate more flights, it should be able to rely less on state aid. However, with the capital raise coming up and the German Government planning to invest, the airline might be getting more state aid anyway.
At the time of publication, Lufthansa had not responded to a request for comment.
What do you think of the situation? Should the German government be investing more in Lufthansa? Let us know your thoughts in the comments section.