Berlin: Germany stood by its 9 billion euro ($10 billion) bailout plan for Deutsche Lufthansa AG, daring the airline's disgruntled top shareholder to shoot it down at a pivotal vote this week.
With Lufthansa fighting for survival after the coronavirus outbreak punctured a decades-long global travel boom, billionaire Heinz-Hermann Thiele is threatening to block the rescue plan - which would dilute his 15.5 per cent holding and influence - at a shareholder meeting scheduled for Thursday.
But with the government signaling it's unwilling to alter the package, the onus is on the 79-year-old investor to decide whether to support a deal he considers faulty or potentially trigger its rejection. The alternative would lead Lufthansa into uncharted waters, forced to reconfigure its survival plan with cash reserves running low and the threat of insolvency looming.
Not willing to budge
The government stands firm on the agreed package, which will be the basis for the shareholder vote, German economy ministry spokesman Korbinian Wagner said. The German government explained the terms of the rescue to Thiele in a meeting attended by Lufthansa CEO Carsten Spohr and the two ministers who brokered the bailout.
"Now the shareholder meeting must decide," Wagner said.
Lufthansa shares traded 3% lower at 3:07 p.m. in Frankfurt, after tumbling as much as 9%. Its bonds sank to three-month low.
"We face a fateful week for our Lufthansa," Spohr said in a letter to employees, warning that it's not at all certain the bailout package will gain approval at the extraordinary general meeting.
The carrier's chances of securing backing for the proposal suffered a blow after only 38 per cent of shareholders registered to vote by a deadline over the weekend.
That means Lufthansa's management must secure two-thirds of votes to win the day, rather than a simple majority. That also means Thiele effectively has a blocking minority, assuming he registered.
Germany's third-richest man has expressed dissatisfaction with the rescue, saying the state is profiteering, and was expected to press Finance Minister Olaf Scholz for last-minute changes.
State gets a strong voice
Terms of the package of loans and equity investment call for Lufthansa to issue a 20 per cent stake to the government at the nominal price of 2.56 euros per share, a change that needs to be approved at the online EGM.
"The federal government should confine itself to the financial aid packages, which are fundamentally very positive, and should not grow into the role of a return-oriented investor," Thiele told the Frankfurter Allgemeine Zeitung newspaper last week.
It was unlikely that the government would give ground before the vote, as Scholz articulated earlier, having rejected other scenarios as unacceptable or impossible to deliver in time to meet Lufthansa's cash requirements, one of the people said.
Analysts at Citibank Inc. see three scenarios for Lufthansa this week.
* One would see the vote pass with Thiele's support.
* The second envisages a failure of the deal, with the government then withdrawing its offer of a 20 per cent stake, a relatively minor part of the deal in terms of the cash it would give to the carrier.
* The third scenario would see Thiele scupper the deal and then expand his holding as the share price fell.
Monday also marks Lufthansa's self-imposed deadline for an agreement with unions on as many as 22,000 job cuts, though the sides may agree to a limited cost-reduction package to buy time as talks continue.
Whether Thiele, a former army tank commander, is prepared to put his 750 million euro stake at risk isn't clear. Economy Minister Peter Altmaier has said previously that the airline will be saved at any cost - perhaps giving the investor hope that Germany would ultimately revisit the basis of the bailout if left with no other choice.
Spohr said in his letter that Lufthansa is preparing for all scenarios, including ways to avoid grounding its jets and continuing communications with the German government should the vote be lost.
"The aim of the board, obviously, is to avoid an insolvency and all the consequences that would bring," he said.