The previously negotiated 9 Billion Euro rescue package for Lufthansa might fall through after all as the LH board has just declined sanctioning it after EU regulators imposed certain unfavorable conditions.
While pretty much all other European airlines have also gotten government support, the complex structure of the German governments involvement such as taking over 25% of the airline plus seats on the board, together with Lufthansa’s shopping spree owning several airlines in Europe isn’t playing out in their favor this time.
The EU regulating body for competition and anti trust didn’t like this bailout involving LH and the German government’s investment deal at all and already advised that they would impose tough conditions.
According to a FAZ article (access here – in German) this situation is not acceptable to Lufthansa and their board signaled a rejection with their decision to postpone a final verdict on the matter.
Delicate: Before any deal as initially proposed could go through Lufthansa would have to call a special general shareholders meeting to get a vote in. The result of this would also be anything but certain as the German government would acquire their shares at a discounted price and therefore existing shares would be diluted.
Lufthansa has also published an official statement.
At its meeting today, the Supervisory Board of Deutsche Lufthansa AG discussed the acceptance of the stabilization package offered by the Economic Stabilization Fund (WSF) of the Federal Republic of Germany, including the necessary convocation of a General Meeting.
The Supervisory Board has taken note of the conditions currently indicated by the EU Commission. They would lead to a weakening of the hub function at Lufthansa’s home airports in Frankfurt and Munich. The resulting economic impact on the company and on the planned repayment of the stabilization measures, as well as possible alternative scenarios, must be analyzed intensively.
Against this background, the Supervisory Board was unable to approve the stabilization package in connection with the EU conditions. However, the Supervisory Board continues to regard WSF stabilization measures as the only viable alternative for maintaining solvency.
Deutsche Lufthansa AG will not convene an Extraordinary General Meeting for the implementation of the stabilization measures for the time being.
At the beginning of the crisis Lufthansa has roughly 4 billion EUR in cash liquidity, however the airline is currently burning through their cash reserves at a rate of 1 Million EUR per hour and is owing customers billions of Euro in refunds after cancellations since late March of this year. The carrier is presently handling just 1% of their usual passenger traffic.
To say the negotiations so far have been difficult would be an understatement. Lufthansa CEO Carsten Spohr doesn’t want the government in the company at all, especially not with their hands in strategic management decisions. Unions expect the governments two board members under the previously negotiated deal to get involved in order to protect jobs of which the airline currently has a huge surplus and which would be insane to keep intact.
Lufthansa’s problem right now is that they got involved with so many airlines in Europe that they became too big to ignore for the regulators and the government taking a huge stake is different from just giving a bridge loan to an airline. Lufthansa has already asked their accounting firms to explore the possibilities for a filing under Chapter 11 like bankruptcy provision in German courts. Should the situation not improve quickly Lufthansa will indeed run out of cash and this is the only remaining option.