Lufthansa Bailout Deal in View After Airline Warns on Urgency

(Bloomberg) -- Deutsche Lufthansa AG’s management said the need for a multibillion-euro coronavirus bailout was becoming urgent as talks with the government in Berlin headed toward a climax.

In a letter to employees, the airline warned cash reserves continued to shrink while it negotiates the 9 billion-euro ($9.9 billion) rescue package. Lufthansa’s board said it hoped the government would find the “political will” for a deal that would keep the carrier competitive against international airlines and meet with European Union approval.

“The question of when and in what structure the German government decides to support Lufthansa is becoming more and more urgent for us,” the company’s management board said in the letter seen by Bloomberg.

Spiegel reported that German Chancellor Angela Merkel, Finance Minister Olaf Scholz and Economy Minister Peter Altmaier had reached a decision over the Lufthansa package, ending weeks of internal wrangling over the government’s position.

Lufthansa gained 4.3% to 8.28 euros in late trading after regular Frankfurt hours. The stock has lost half its value this year.

The German government and Lufthansa have been locked in intensive talks for weeks over the rescue plan. While the Economy Ministry internally agreed on taking a stake of 25% plus one share, the had opposed to the move, people familiar with the matter said earlier.

Under German law, a 25% plus one share stake would enable the government to block motions at the company’s annual general meetings, giving it a veto over major decisions.

Government Stake

To break the impasse, one scenario that’s been under discussion would see the airline sell 9.3% of new shares to the government at a steep discount. An additional convertible bond could then give the government a blocking minority, if required. Such a move would also give the state upside potential from a rebound in Lufthansa shares.

Lufthansa executives have raised concerned the terms on offer would hamstring it against international competitors who’ve received less stringent bailout terms, a point the management board repeated in the letter.

The carrier declined to comment.

Lufthansa is meanwhile running out of time and money, burning through 800 million euros each month after the coronavirus grounded most of its fleet. Chief Executive Officer Carsten Spohr said on May 5 that the company had about 4 billion euros in cash remaining.

300 Planes

The letter gave further details of Lufthansa’s expected fleet reductions for the coming years. The board said it expected 300 of its aircraft would remain grounded in 2021 as demand for flying recovers only slowly, with 200 remaining out of service into 2022.

Lufthansa had previously said it expected its pre-crisis fleet of around 760 aircraft to be around 100 smaller once normality returns around 2023, a forecast it stuck to in the letter.

Spohr earlier this month said the airline is in “intense” talks with Airbus SE and Boeing Co. about postponing plane deliveries as he set out plans for surviving the coronavirus storm.

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