Austria Agrees 450 Million Euro Aid Deal for Lufthansa Arm

(Bloomberg) -- Deutsche Lufthansa AG’s historic state bailout increased by 450 million euros ($508 million) after Austria agreed to provide support to the German carrier’s division in the country.

Austrian Airlines will get 150 million euros in direct aid plus 300 million euros in loans underwritten by the government, helping to sustain the unit as carriers begin to restore flights amid an easing of coronavirus lockdowns, Chancellor Sebastian Kurz said in a briefing Monday.

Lufthansa has already won European Union backing for a 9 billion-euro package from Germany and secured $1.3 billion in state support for its Swiss arm. The Austrian breakthrough leaves Belgium as the only one of the group’s four home countries yet to reach an agreement on emergency funding, with talks ongoing.

Europe’s biggest airline, which will match Austria’s cash contribution, faces a renewed challenge in Vienna after Ryanair Holdings Plc, the region’s largest discount operator, said Monday its Laudamotion arm would retain a hub in the Austrian capital following an agreement on new pay terms.

Lufthansa closed 9.1% higher in Frankfurt for its biggest gain since April 27 after Bloomberg reported details of the deal earlier.

Lufthansa Chief Executive Officer Carsten Spohr agreed to keep Vienna as its hub for central and eastern Europe for at least 10 years and to expand it in tandem with the group’s other bases, backed by penalties if that accord is broken. The clause reflects Austrian Airlines’ status as a key plank ofr the economy, offering vital inter-continental connections.

After initially exploring an equity holding in Lufthansa, Austria settled for guarantees and the right to nominate members to the unit’s supervisory board and ownership trust. Its loan guarantee, however, is secured by Austrian Airlines stock and the carrier’s aircraft.

Austria will also introduce a 30-euro fee for flights of less than 350 kilometers, according to environment minister Leonore Gewessler, and work with the airline to replace connections to regional airports with rail services where the journey can be kept within three hours.

Lufthansa in turn secured an agreement for ticket prices from Vienna to remain above 40 euros, including taxes and fees, a measure that will help protect Austrian Airlines from low-cost competitors such as Ryanair and Budapest-based Wizz Air Holdings Plc, Eastern Europe’s biggest discounter.

Ryanair said separately it had reversed plans for the Lauda arm to exit Vienna after a deal on pay. The unit will resume flights in the Austrian capital from July 1 and keep a fleet of Airbus SE A320 jets, while still cutting some jobs.

Lauda said it needs a lower cost base to be ready for “intense post-Covid competition” given the subsidies granted to Lufthansa and Austrian Airlines.

Austrian will resume some flights to North America and Asia next month after its home country managed to get the Covid-19 pandemic largely under control. Public life has almost returned to normal with borders open to all neighboring states excluding Italy.

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