Brussels Sets Price for Backing of $9.8 Billion Lufthansa Rescue

The German government’s 9 billion-euro ($9.8 billion) bailout of Deutsche Lufthansa AG may cost the stricken carrier some valuable assets: Key flight slots at airports in Frankfurt and Munich.

The European Commission wants Lufthansa to surrender the slots out of concern the aid will give the carrier unfair advantage over competitors, people familiar with the matter said. After weeks of talks, Germany on Monday offered Lufthansa a package of loans and equity investment to keep the carrier aloft through the coronavirus storm. Officials in Brussels are concerned the deal will distort competition and fuel lawsuits from competitors like Ryanair Holdings Plc, the people said. Approval of the deal could take several weeks, they said, asking not to be named discussing confidential deliberations.

To compensate for the state help, the European Union’s executive arm also would like the airline to decrease the number of aircraft based in Germany, the people said. German Chancellor Angela Merkel told a meeting of conservative lawmakers the government would fight for Lufthansa to keep key slots, people familiar with the matter said.

“The discussions with the European Commission are continuing at full speed,” German Economy Minister Peter Altmaier said Monday at a news conference in Berlin. “So far, we have managed to get approval from Brussels for all our aid requests during the corona crisis. How long it will take I cannot say, but the main point for us is that we want to achieve a good result.”

Airport slots are a crucial currency for airlines, which rarely give up the ability to operate flights at popular times and to destinations. It’s a commodity that EU regulators have often asked carriers to cede to smaller rivals when seeking approval for mergers, including during Lufthansa’s 2017 takeover of a unit of Air Berlin.

Like airlines the world over, Lufthansa is fighting for survival as restrictions to contain the coronavirus puncture a decades-long aviation boom. The company plans to operate fewer aircraft when flights resume and is closing discount arm Germanwings to resize for what it warns could be years of depressed demand.

The EU’s press office said it had no comment on the Lufthansa plan and was “in constant contact” with governments. It defended the need for “additional commitments to preserve effective competition” that are required for recapitalizations of more than 250 million euros to a company, according to an emailed statement. “This is important to preserve the level playing field in the single market post-coronavirus crisis to the benefit of all European consumers and companies.”

The Lufthansa package will be the first recapitalization to be weighed by the EU after it loosened rules this month that usually prevent governments from pumping money into favored firms. Regulators are facing criticism from Ryanair that they are violating EU principles on fair competition by allowing huge amounts of state cash to prop up inefficient airlines. Ryanair argues that this could fund a price war or expansion spree to knock out rivals.

EU officials are aware of the need for speedy approvals, said Margrethe Vestager, the bloc’s antitrust chief. Officials have been “working seven days a week around the clock” and at night “in order to make sure that things can be processed as fast as possible,” she told EU lawmakers on Monday.

The German government on Monday unveiled an aid package for Lufthansa that involves taking an initial 20% stake that could rise to a blocking minority of 25% plus one share in the event of a hostile takeover. The deal also includes a 5.7 billion-euro investment via a so-called silent participation — a debt-equity hybrid instrument that wouldn’t dilute shareholder voting rights. The state will also back a three-year loan of 3 billion euros.

As well as approval from the European Commission, Lufthansa’s supervisory board must approve the deal and shareholders will have to vote on the capital increase at a special meeting, likely to be held in late June.

The package represents the biggest corporate rescue in Germany during the pandemic crisis. It’s also the only one that involves a direct investment by Merkel’s government, but more may be coming. The government set up the 100 billion-euro fund to buy stakes in stricken companies as part of its effort to stabilize Europe’s largest economy.

Source: Bloomberg

Can’t stop reading? Read more