As Lufthansa negotiates for a huge government bailout, it is also exploring bankruptcy as another path toward sustainability.
The Süddeutsche Zeitung reports that Lufthansa is considering filing for bankruptcy. It is quickly burning through its remaining cash and finds passengers traffic is down 99%. Negotiations on a bailout bill worth up to €10 billion are ongoing, but not proceeding well.
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Germany wants a 25% stake in Lufthansa in exchange for the bailout (worth about 2x Lufthansa’s current market cap) with two seats on the supervisory board and the ability to block decisions it disagreed with. Furthermore, the interest rate would be set at 9%.
This is unworkable, says Lufthansa. The interest rate would ravage investment potential and the 20-seat Lufthansa Supervisory Board, now evenly split between labor and management, would be tilted in favor of labor. Lufthansa fears labor and the government would team up to block necessary job cuts.
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Thus, Lufthansa is exploring bankruptcy. Lufthansa would apply for Schutzschirmverfahren, which would be similar to Chapter 11 bankruptcy in the United States. Such an act would allow Lufthansa to discharge certain obligations toward creditors, trim employment, and renegotiate pensions. Specifically, Lufthansa would have three months to work out out a management-led restructuring plan.
Certainly, these rumors could simply be a negotiating tactic on the part of Lufthansa. But an airline declaring strategic bankruptcy in Germany is hardly unprecedented. Condor is currently under the same proceedings as it seeks to a survive after the dissolution of Thomas Cook.
> Read More: Condor Survives After Bailout From German Government
With Lufthansa facing 9% interest rates and heavy-handed control, a strategic bankruptcy filing certainly becomes more attractive. But negotiations between the German government and Lufthansa continue. Currently, bankruptcy is merely an option under consideration.
image: Colin Brown Photography / CC 2.0