Lufthansa Fully Repays 9 Billion Euro Government Bailout Ahead Of Schedule

Lufthansa has just repaid the last tranche of the bailout loan which the carrier received from the German government in May 2020 in order to weather financial difficulties as a result of the pandemic.

In spring of last year Lufthansa like many other carriers requested government assistance to stem the financial hurdles they faced after air travel came to a halt and passengers were due billions in refunds for flights that never took off.

In order for Lufthansa to survive the government eventually agreed to provide financial backing to the carrier to secure the survival and prevent an insolvency that would have caused complete chaos and a flood of Lufthansa employees into unemployment.

The final agreement called for 20% of Lufthansa to go to the German state, additionally 5% as a convertible bond as well as a three Billion Euro loan to guarantee liquidity.

According to the Handelsblatt Lufthansa has now paid the loans back entirely and the German government will sell their Lufthansa stock within the next five month to two years.

Lufthansa CEO Carsten Spohr said on Friday that the airline has completed repayment efforts of the German government bailout package worth a total of nine billion euros that saved it from the brink bankruptcy in Spring/Summer of 2020.

The company says the repayment was completed “much earlier than planned or expected” thanks to cost-cutting measures and rising travel demand after countries eased their coronavirus restrictions.

Staring five months from now but latest by October 2023 the German government will sell the stake it took in Lufthansa as part of its rescue deal which currently sits at roughly 14 percent following a recent capital increase.

Lufthansa CEO Carsten Spohr thanked the government and German taxpayers for helping the company through “the most serious financial crisis in our company’s history,” saying over 100,000 jobs were saved. The company has published adverts to this effect in major German newspapers this weekend

This week Lufthansa issued another set of bonds worth 1.5 Billion Euro, paving the way to repay they government and to close this difficult chapter of the companies history.

Lufthansa’s earnings are trending upward again as more countries are reopening to visitors from abroad and the very important USA market just dropped the travel ban last week.

The negotiations surrounding the airlines rescue package were heavily contested last year:

Lufthansa Reaches Agreement With German Government Over 9 Billion Euro Bailout Deal

Following the bailout Lufthansa was able to finally reimburse passengers for their flight cancellation and while some passengers accepted vouchers on a voluntary basis that was one of issues the airline was most battered for in the media. It was also a condition for the bailout itself that passengers would see their money being refunded.

Since then the carrier underwent a restructuring and cost cutting program. A total of 30,000 jobs were cut with the company still planning to axe 3,000 more positions as the airline communicated earlier this month. After all the airline will continue to fly albeit in a much leaner fashion than pre-pandemic, a trend that is going through the entire industry which has already seen numerous bankruptcies, bailouts and job losses over the past year. Covid already weeded out the weakest players in the aviation sector with many others still on life support.

Conclusion

Lufthansa CEO Carsten Spohr has gambled and also thwarted the threat that key decisions during board meetings can’t be torpedoed by the two government appointed members to the supervisory board that was insisted upon. Nevertheless beggars can’t be choosers and was either accepting this compromise or going to bankruptcy court, filing for controlled insolvency as Lufthansa has already considered weeks earlier.

Likewise for the German government it was a prudent decision to provide the guarantees and resources to Lufthansa in order to help them survive. Having tens of thousands of employees flood the social assistance systems and the major German airline slide into bankruptcy would have been an economic and reputational disaster. Considering the amount of money spent on other things during the pandemic that just evaporated and will never be seen again this was probably one of the least risky investments of the past 18 months.