Lufthansa Pitches $6.5 Billion Plan to Raise Capital, Repay Aid

(Bloomberg) -- Deutsche Lufthansa AG will ask shareholders to approve a capital increase that would open a path toward removing the German government as its biggest shareholder.

The proposed 5.5 billion euros ($6.5 billion) in fresh capital would give Europe’s largest airline enough cash to replace a so-called silent participation, a major part of Lufthansa’s 9 billion-euro bailout from the state.

Interest rates on the silent participation are due to rise, and the airline might be able to get better financing via a capital raise, the company said in slides accompanying the announcement Thursday. Lufthansa could decide to raise less than the full authorization, and could issue fresh capital in steps.

Shares in Lufthansa traded as much as 6.8% lower and were down 3.3% as of 5:21 pm. in Frankfurt, after reversing earlier gains.

While Lufthansa’s statement outlines it would only opportunistically issue fresh capital, “it still illustrates the equity dilution risk that keeps us cautious on shares,” said Adrian Yanoshik, an analyst at Berenberg Equity Research.

Lufthansa received the bailout last year after the coronavirus pandemic punctured a decades-long boom in flying. The package saw the German government take a 20% stake and apply strict restrictions on the airline’s M&A activity and executive pay.

Other Aid

Paying back the 5.5 billion euro silent participation -- a debt-equity hybrid instrument that doesn’t dilute shareholder voting rights -- would leave Lufthansa owing a total of 2 billion euros to the governments of Switzerland, Belgium and Austria, where it operates so-called flag-carrier airlines. The company has already repaid 1 billion euros of the amount loaned by Germany’s state development bank, KfW.

Lufthansa shareholders are set to vote on the proposal at the company’s annual meeting on May 5. A simple majority is required for passage. The airline said it hasn’t decided whether to undertake the capital increase.

The German airline group posted a record 6.7 billion euro loss in 2020 due to the collapse in air travel and mammoth fuel hedging losses. The carrier last month said it will struggle to make money on flights before the end of this year as it dialed back capacity plans.

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