Lufthansa Dodges Insolvency After Shareholders Back Bailout

(Bloomberg) -- Deutsche Lufthansa AG avoided the looming risk of insolvency after shareholders approved a 9 billion-euro ($10 billion) bailout from the German government, securing the survival of Europe’s largest airline after weeks of drama over the rescue package.

Fighting for survival after the coronavirus pandemic punctured a decades-long aviation boom, Lufthansa last month reached a deal with the German government for a package of loans and credit guarantees.

The bailout, which features the sale of a heavily discounted 20% stake to Chancellor Angela Merkel’s government, hung in the balance until Lufthansa’s biggest shareholder, billionaire Heinz Hermann Thiele, publicly backed it hours before the crunch vote.

The approval came just ahead of news Air France-KLM received 3.4 billion euros in aid from the Netherlands, adding to a 7 billion-euro package the group received from France last month.

Lufthansa shares swung between gains and losses in pre-market trading on Tradegate. Lufthansa shares rose 7.1% to 9.59 euros on Thursday, paring its decline for the year to 42% and valuing the company at 4.6 billion euros.

Lufthansa plans to execute the sale of shares to Germany for 2.56 euros apiece, nearly one fourth the current market price, in the coming days to unlock the financing. The airline warned that insolvency threatened soon if the package wasn’t cleared by shareholders.

Another step forward came earlier Thursday, when European Union regulators approved the bulk of the package in exchange for Lufthansa making some slots available at its Frankfurt and Munich hubs.

Profit Motive

The successful shareholder vote not only hands Lufthansa a lifeline but also saves Merkel’s government from a damaging defeat as it seeks to revive the country’s export-led economy.

In the process, Germany reasserted itself into the heart of a company that was privatized with fanfare two decades ago and links firms like Siemens AG and Volkswagen AG with markets around the world.

“This is very, very good news for the company, the employees and German business,” said Finance Minister Olaf Scholz, a key figure in negotiating the bailout. “Our engagement is temporary. When the company is fit again, the state will sell its stake -- hopefully with a small profit.”

The approval of the German package opens the door for further aid already promised by Austria and Switzerland for operations in those countries. Belgium is also discussing funding.

Even with the state aid, Lufthansa will need deep restructuring to recover from the pandemic, which all but halted travel around the world. Chief Executive Officer Carsten Spohr has predicted that the airline will face years of depressed demand. The company expects its fleet to be 100 aircraft smaller after the crisis, implying the loss of over 10,000 jobs.

Securing the bailout allows Lufthansa’s management to turn attention to negotiating concessions with the company’s powerful labor unions.

The company reached a deal late Wednesday with cabin crew that would save around 500 million euros through 2023. In return, Lufthansa pledged not to make redundancies for the duration of the coronavirus crisis. A similar deal with pilots is close, Spohr said at the meeting.

The bailout offers the chance for the airline to rebuild its business, and “we can do it,” Kley said.

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