One Man Can Save Lufthansa’s Bailout or Unleash Bedlam

Deutsche Lufthansa AG’s future is in the hands of shareholders, who vote Thursday on a 9 billion-euro ($10.2 billion) state bailout. If they reject the lifeline, the cash-strapped carrier could tip into insolvency.

The outcome was thrown into doubt by Heinz Hermann Thiele, one of Germany’s richest men. The 79-year-old built a stake of more than 15% in the carrier, becoming the largest investor, and has said he’s unhappy with the deal.

One Man Can Save Lufthansa’s Bailout or Unleash Bedlam

Thiele’s holding gives him the power to scupper the rescue should he choose to do so, after just 38% of investors registered to vote. The measure needs two-thirds support of those in attendance. The billionaire didn’t disclose his intentions during talks with Lufthansa and government officials on Monday, according to people familiar with the discussions.

Lufthansa, hammered by the coronavirus crisis like its peers across the globe, agreed with the German government in May on a bailout made up of loans and an equity investment. The accord would hand the state a 20% stake at a steep discount, diluting stockholders like Thiele.

One Man Can Save Lufthansa’s Bailout or Unleash Bedlam

With the airline burning through 1 million euros an hour, time is running out. Here are potential scenarios that could play out in coming days between Lufthansa, Thiele and the government.

Bailout Wins Approval

Thiele might be playing a high-stakes game of chicken and choose to vote for the rescue package on Thursday. If he does so, the motion should pass, pulling the carrier back from the brink -- an outcome that the airline’s management, unions, and many investors say they favor.

Guido Hoymann, an analyst at Bankhaus Metzler, said Thiele’s stake would be at risk should he vote against the bailout, potentially forcing the carrier into insolvency. His own self-interest suggests he’ll fall in line at the last minute. “Thiele cannot play hardball to the fullest,” Hoymann said. “All parties depend on the aid package to go through.”

Rescue Fails, Deal Revised

The government indicated it has no interest in revising the bailout agreement before the shareholder vote. But who’s to say what will happen if it fails? After all, it was Peter Altmaier, Germany’s economy minister, who told Bild newspaper in May that the country would do whatever it takes to save the company.

One Man Can Save Lufthansa’s Bailout or Unleash Bedlam

Sending the nation’s flag carrier into insolvency would not be a good look for the government of Angela Merkel, which has generally won praise for its competent handling of the coronavirus crisis. The prospect of negative publicity, together with the threat of thousands of job losses, might be enough to persuade the government to alter the terms of the rescue, perhaps by removing or reducing the contentious stake, according to Ruxandra Haradau-Doeser, an analyst at Kepler Cheuvreux.

“We see a high probability for a Plan B if the capital increase will not be approved,” she said.

During the weeks-long bailout talks, Lufthansa proposed a deal whereby the government would take a roughly 10% stake, a level that wouldn’t require a shareholder vote, according to people familiar with the matter. The government could then increase its stake in an additional 10% capital raise in which all shareholders could participate.

The government initially dismissed Lufthansa’s warnings that the deal would risk being shot down by shareholders, plumping instead for the 20% stake as it would create more potential upside for taxpayers, the people said.

To be sure, it’s also possible that German officials will balk at revising the package under pressure from one of the country’s richest men at a time when the economy is suffering its worst slump in decades.

Representatives of Germany’s Economy and Finance ministries declined to comment Wednesday on whether the government would consider such a plan, after Reuters reported that the airline was dusting it off as a potential fallback in the case of a failed vote.

According to German law, a company can offer a maximum discount of 5% to the current market price for a capital increase excluding subscription rights. That would be less attractive for the German government than the 2.56 euros per share the government agreed on under the bailout package to be voted on Thursday.

Lufthansa shares were trading down 3% Thursday to 9.11 euros. They have decilned 44% this year.

Rescue Blocked, Thiele Steps In

With the bailout scuttled and the airline running out of cash, Thiele could use his sizable fortune -- around $16.9 billion, according to the Bloomberg Billionaire’s Index -- to carry out a rescue of his own, thus becoming the dominant shareholder in a storied German firm.

The mogul announced last Thursday a plan to sell 8 million shares of Knorr-Bremse AG, the Munich-based brake manufacturer that underpins his fortune, freeing up about $850 million in cash. He still owns a majority of the company.

Thiele could also make a loan to Lufthansa, with jets and other assets as collateral, said Mark Manduca, an analyst with Citigroup in London who rates the shares sell.

It would be a high-risk strategy, but one that offered the former army tank commander the chance to become one of the most powerful players in European aviation. If Lufthansa’s stock price were to climb once the pandemic passes, he’d stand to make a new, bigger fortune.

Bailout Rejected, Insolvency Follows

Even if all rescue efforts fail and the airline is forced into insolvency, Lufthansa won’t disappear. Under a so-called protective shield from creditors, the airline would be able to restructure its business and cut staff.

Equity and debt holders would suffer losses and hundreds of jets and a chunk of its profitable Lufthansa Technik aircraft maintenance division might well be sold off. Still, a slimmed down version of the carrier would fly again.

One Man Can Save Lufthansa’s Bailout or Unleash Bedlam

But a Lufthansa insolvency would be a further blow to Germany’s reputation for business stability after Wirecard AG’s accounting scandal. It could also dent German Finance Minister Olaf Scholz’s image and spell the end of Chief Executive Officer Carsten Spohr’s term at the helm of Lufthansa.

“The aim of the board, obviously, is to avoid an insolvency and all the consequences that would bring,” Spohr said in a letter to employees Sunday.

©2020 Bloomberg L.P.

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