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.
> Read More: How Lufthansa Is Fleecing Customers…Again
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.
> Read More: German Government Debates Micromanaging Lufthansa
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
CONCLUSION
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
Disturbing news. A 9% rate does not translate into much confidence in LH. Clearly they see it as a fairly high risk loan.
Welp, I guess that means no more roses in first class.
Nine percent! Outrageous. I think LH is using bankruptcy as a tactic. The unions will pressure the government to back off. LH certainly doesn’t want some politician apparatchik hacks who couldn’t get out of a wet paper bag sitting on the board. If so, the end result is that LH would revert to a latter day Interflug carrier. A dream of many socialists/Marxists. Of course, Greta Thunberg is dreaming of all airlines go out of business. Yeah, I think the day of the fresh rose in F is gone. Sad times, indeed.
P.S. With the latest news about LH, what is happening with Austrian, Brussels, Swiss? I read that within the Swiss government there is not much movement on a bailout for Swiss owing that LH Group – a German company – owns it. This is not 2001 when Swiss Airlines was Swiss. Also, Chinese Communist Party-owned Swissport has its hands out, but the Swiss government is nervous about bailing them out owing to the COVID-19 and China connection, China’s propaganda campaign and strong arming the EU and other governments to keep their mouths shut. Swissport. Nothing Swiss about it. Owned by the Communist Party of China! CMIU.
According to Swiss Newspaper Tages Anzeiger the Swiss Government is willing to give LX 1.5 Billion CHF in the form of Bonds and Grants. OS just requested from the Austrian Government 767 Million Euro, there however the government is asking more or less for guarantees from Lufthansa that they don’t close Vienna for the hat money.
It’s Zeitung. I expected you to know
That was just a typo. I read the article in the German. 😉 I do know better.
Matthew, I’m sure I can’t be the only reader who would love to hear you speak German. That would be so cool. It’s so impressive to be multilingual.
If Ben has me on his Happy Hour soon, we can speak German together!
He doesn’t allow you to join? That’s a bit mean.
No, it’s just a matter of time.