Lufthansa, German Government & European Union Finally In Agreement Over Rescue Package

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After lots of rowing with ups and downs over the 9 Billion Euro rescue package for Lufthansa there finally seems to be an agreement between the airline, the Government and EU regulators.

Under the agreement Lufthansa will lose 24 slots at Frankfurt & Munich which will first be offered to new competitors or (if no takers within 18 months) be available to existing carriers in the market.

While this is a major hurdle taken there is still lots of work to be done ranging from final confirmation of the E.U. all the way to Lufthansa’s special shareholder meeting plus of course confirmation by the board where the whole deal has to be approved.

Lufthansa summarized the new situation in their newsroom announcement:

At its meeting today, the Lufthansa Executive Board decided to accept the commitments offered by Germany to the EU Commission for the stabilization package negotiated with the Economic Stabilization Fund (WSF) of the Federal Republic of Germany.

The scope of the conditions required in the EU Commission’s view has been reduced in comparison with initial indications. Lufthansa will therefore be obliged to transfer to one competitor each at the Frankfurt and Munich airports up to 24 take-off and landing rights (slots), i.e. three take-off and three landing rights per aircraft and day, for the stationing of up to four aircraft. For one and a half years, this option is only available to new competitors at the Frankfurt and Munich airports. If no new competitor makes use of this option, it will be extended to existing competitors at the respective airports.

The slots will be allocated in a bidding process. The slots can only be taken over by a European competitor that has not itself received any substantial state recapitalization as a result of the corona pandemic.

The Supervisory Board must approve the stabilization package negotiated with the WSF, including the commitments to the EU Commission. Subsequent to the Supervisory Board’s decision, the company intends to convene an Extraordinary General Meeting in the near future to obtain shareholder approval for the WSF stabilization measures.

With all these roller coaster rides of the last few weeks I’d be surprised if everything is smooth sailing from now on. There are still plenty of things and situations that can sink this deal.

Is Lufthansa giving up too much?

That’s a good question and probably the correct answer can only be given several years from now. In the short term I’d say it doesn’t matter to cut down on slots at both hubs as I don’t expect demand to be “up there” as it was in the past few years. In fact we might see a downsizing of the fleet altogether especially in regards to the A380 which have already been discussed to be decommissioned.

These restrictions will be binding for three years and those can go by quite fast, especially in the current situation. It will likely take at least 1.5-2 years until air travel volume will rebound to previous levels. The three year is only going to start once the current limitations during COVID-19 as given by the EU will run out.

The fact that for the first 18 months the slots can only go to new competitors not already in the MUC/FRA market and only European carriers will automatically fend off most of the real dangerous competition such as budget carriers Easy Jet and Ryanair that already operate from Frankfurt or the ME3 carriers which also have their very own problems right now.

Conclusion

There is still lots to be done here. As I mentioned before the final ink is dry I wouldn’t give too much on these interim decisions and negotiations anymore.

For now the airline is going faster and faster to the point of no return. Lufthansa loses one Million Euro per hour in the current situation, owes Billions in refunds and has pretty much run out of cash in a few weeks time. These four Billion in liquidity isn’t that much after all if you have large liabilities on a monthly basis.

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