Lufthansa and Germany have agreed to a €9 billion bailout that will provide a vital lifeline to the Lufthansa Group and give the German government two seats at the table. Germany will now is a part-owner of Austrian Airlines, Brussels Airlines, Eurowings, Lufthansa, and SWISS.
Key Details About Lufthansa Group Bailout From Germany
Here are the key details of the bailout, as revealed by Lufthansa:
- Bailout amount: €9 billion ($9.8 billion)
- €5.7 billion loan from German government with an interest starting at 4% and rising each year starting in 2022 to a cap of 9.5% in 2027
- €3 billion in revolving credit from KfW, Germany’s state-owned development bank
- €300 million in purchase of new shares of Lufthansa stock
- German government receives 20% of Lufthansa stock at €2.56 per share, totaling €300 million
- This will dilute holdings of existing investors
- Government will not exercise direct management, but will have the right to block any takeover bid by acquiring up to 25% + 1 of outstanding shares
- Germany’s seats on the advisory board will be filled by “independent experts”
- Executive pay raises and shareholder dividends will be strictly controlled
- Germany must sell its stake in full by the end of 2023 if two conditions are met:
- Loan repaid in full
- Share price is higher than purchase price
Lufthansa’s Management Board and the European Commission must still approve the deal, but no further obstacles are predicted at this point. There’s no indication that the issue of consumer refunds played a roll in this deal. Lufthansa continues to unlawfully hold back on billions of Euros worth of refunds.
> Read More: How Lufthansa Is Fleecing Customers…Again
Is Bailout Worthwhile For Lufthansa?
I’m not an expert on the ease of securing capital in Continental Europe, but Lufthansa’s concessions are surprising. With interest rates so low, I figured Lufthansa would have been able to raise this money from private entities with fewer strings attached. Even so, unions are apparently perturbed there are not stronger job protections. Lufthansa and Germany went back and forth for weeks on a deal, with Lufthansa ultimately giving up a lot more than it had initially planned.
Lufthansa’s infusion from Germany will eliminate any risk that Lufthansa goes under. The agreement hurts shareholders and places pressure on Lufthansa to perform. Sadly, Germany continues to back Lufthansa’s specious claim that cash refunds can be denied due to COVID-19.
Did Lufthansa give up too much in exchange for this bailout?
I find the repayment terms interesting. Probably better that there is a plan for the government to exit, but is it realistic that they can be paid back in just 3 years?