Lufthansa Bailout Hinges on Refunds for Canceled Tickets
Lufthansa Bailout Size Hinges on Germany’s Ticket Refund Appeal
(Bloomberg) -- The size of the German government bailout for national carrier Deutsche Lufthansa AG depends on whether or not the airline will be forced to pay billions of euros in refunds to customers.
Lufthansa, with most of its fleet grounded due to coronavirus lockdowns, had about 4 billion euros ($4.35 billion) in unused ticket money at the end of December, according to the company’s annual report. If the European Union enforces rules that the company has to issue refunds to passengers who demand them, that would wipe out much of the airline’s remaining liquidity, increasing the size of the government’s intervention.
Analysts at Credit Suisse on March 23 estimated that Lufthansa has about 5.1 billion euros in cash and undrawn credit facilities, a sum that would run out in about 25 days if the company had to refund all its tickets.
The government, faced with potentially hundreds of billions of euros in bailouts and assistance to virus-hit companies, on Thursday asked the European Commission that airlines like Lufthansa be able to issue vouchers. Brussels officials have so far insisted that existing rules be upheld and airlines forced to refund customers that don’t want vouchers for rebooking.
Forced refunds “threaten to bankrupt companies,” Germany’s government wrote in an appeal to the European Commission. A spokesman for the commission said the body was looking into the request, but wouldn’t say when any amendments might be made.
Chancellor Angela Merkel’s government last month passed a package of measures totaling more than 750 billion euros ($827 billion) to address the economic fallout from the virus. On top of that, the state-run Kreditanstalt fuer Wiederaufbau has 500 billion euros available to boost the liquidity of struggling firms.
Lufthansa is expected to seek a loan from KfW to weather the fallout from the coronavirus, a person familiar with the plan said last month. If all else failed, the government could also purchase a stake in the airline, said the person, who asked not to be named discussing private negotiations.
The airline has applied for a German wage support plan for thousands of staff in another move to protect its cash reserves.
A spokesman for Lufthansa said the airline welcomes the German government’s appeal on refunds, adding the crisis is an exceptional situation and that vouchers would help the company maintain liquidity.
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