Lufthansa Under Mounting Pressure to Accept Government Stake

(Bloomberg) -- Deutsche Lufthansa AG Chief Executive Carsten Spohr is facing mounting pressure to hand over an equity stake to the German government to as the airline fights for survival in the Coronavirus crisis, according to people familiar with the matter.

Lufthansa representatives are locked in talks with the cabinet in Berlin, the people said, asking not to be identified because the matter is private. Spohr has resisted the idea Germany would need to take a direct equity stake, preferring instruments such as loans or credit guarantees to shore up cash reserves.

A spokesman for Lufthansa said the firm was talking to the government and state-backed development lender KfW about options that would maintain liquidity, but declined to comment further. A spokeswoman for Germany’s Economy Ministry declined to comment.

The people familiar with the discussions said uncertainty on when the majority of the airline’s fleet will fly again, whether it will have to refund thousands of customers and questions about Lufthansa’s debt servicing capacity have led participants to discuss scenarios under which the government would take an equity stake in the German flagship carrier.

Cash Injection

Like airlines worldwide, Lufthansa is fighting to maintain liquidity amid a sudden stop in revenue. The company had about 5.1 billion euros ($5.5 billion) in liquidity, according to a Credit Suisse analysis last month, a sum that would barely cover liabilities if the European Union upholds laws that would mandate cash refunds for cancellations on demand.

In addition to liabilities for refunds, Lufthansa also has expenditures of around one billion euros per month, meaning it will need a sizable injection to weather the storm, according to the Credit Suisse analysis. In talks with the German government, Lufthansa has pushed for options that would allow the carrier to maintain operational independence, including loans and credit guarantees from the state-backed Kreditanstalt fuer Wiederaufbau, known as KfW.

But amid lingering questions around the ability to repay Lufthansa’s mounting debt pile should it only tap KfW’s crisis relief loan facility, company negotiators are considering equity options, according to the people familiar with the matter. A potential scenario could involve the government taking a direct stake in a capital increase or injecting equity without acquiring voting rights, some of the people said.

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