Lufthansa’s $6.7 Billion German Recapitalization Gets EU Nod
Lufthansa’s 6 Billion-Euro German Recapitalization Gets EU Nod
(Bloomberg) -- Deutsche Lufthansa AG won European Union approval for Germany’s 6 billion-euro ($6.7 billion) recapitalization that Irish rival Ryanair Holdings Plc says it will sue to overturn.
The European Commission said in a statement on Thursday that Germany’s plan to take a 20% stake in Europe’s largest airline is in line with state-aid rules and would prevent the carrier’s collapse.
The EU approval covers the German government’s plan to pay 300 million euros for a 20% stake and make two so-called silent participations of 4.7 billion euros and 1 billion euros in the company’s capital.
The decision “comes with strings attached, including to ensure the state is sufficiently remunerated,” EU Competition Commissioner Margrethe Vestager said in an emailed statement. “Lufthansa has committed to make available slots and additional assets at its Frankfurt and Munich hub airports, where Lufthansa has significant market power. This gives competing carriers the chance to enter those markets.”
Germany’s bailout for Lufthansa has already faced resistance from the airline’s supervisory board, which complained about the EU’s demand for it to yield 24 slots a day at Frankfurt and Munich airports once air traffic demand returns. The EU sought the cutbacks to compensate for the massive advantage the state subsidy will give Lufthansa over rivals. Handing over slots should stoke more competition.
Those measures don’t go far enough for Ryanair, which will sue to overturn the EU approval, Chief Legal Officer Juliusz Komorek said. The legal fight adds to several other Ryanair legal challenges to state aid for airlines.
Ryanair is separately seeking an EU cartel probe into alleged discussions between Lufthansa and other airlines to avoid a price war in Italy.
“There is absolutely no reason why Lufthansa, which benefits from the German payroll support system scheme, might on top of this require 9 billion euros,” he told reporters on a video call. “It doesn’t. It needs it as a war chest.”
The German bailout plan overcame a major roadblock when the airline’s biggest investor said he’d vote in favor of the rescue package at a special shareholder meeting later Thursday. He had earlier criticized a steep discount being granted to the German government for the stake, and held the votes to single-handedly stop the share sale.
The EU approval comes with tight conditions to ensure the aid is repaid swiftly and Lufthansa doesn’t use taxpayer funding to expand its business.
Lufthansa will be banned from dividends and share buybacks until the aid is repaid. Managers can’t get bonus payments nor can the company buy more than 10% of rivals until at least 75% of the recapitalization is redeemed. The measures aim to give Lufthansa an incentive to buy back the state stake and silent participations.
The EU’s decision doesn’t cover a 3 billion-euro state loan guarantee that the EU says it will handle separately.
Regulators said the aid “does not exceed the minimum needed to ensure the viability of the airline.” Vestager said last week her officials had quizzed Germany over comments by Lufthansa’s chief executive officer that the aid was more than needed. The EU can’t allow governments to give companies more financial help than they require.
Lufthansa aims to redeem the loan and the recapitalization by 2026, the EU said.
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