Frankfurt: Deutsche Lufthansa is close to a multi-billion euro bailout deal that would see Germany become its biggest shareholder after the coronavirus punctured a decades-long boom in air travel.
Lufthansa confirmed in a statement it's in advanced talks with Germany's WSF Economic Stabilization Fund for aid of as much as 9 billion euros ($9.9 billion). The package would include a 3 billion euro loan, a so-called silent participation and the WSF obtaining a 20 per cent stake through a capital issuance, Lufthansa said.
The government would also receive a convertible bond equivalent to an additional 5 per cent plus one share of the company's increased capital. Under German law, a 25 per cent plus one share stake would enable the state to block motions at annual general meetings, giving it a veto over hostile takeover attempts.
Lufthansa also said two seats on its supervisory board are to be filled in agreement with the German government. It didn't say whether these would be political or independent figures, a matter under discussion in negotiations.
Lots of tension
If agreed, the deal outlined by Lufthansa would bring the curtain down on weeks of tense negotiations between the company and state officials. It would also set the scene for a dramatic extraordinary general meeting at which shareholders will have to vote on whether to accept a package that would dilute their own stakes.
Lufthansa would issue the additional capital to the government for the nominal price of 2.56 euros, a steep discount that would allow the state to profit from any upside to the company's share price.
The contours of a deal come after the airline warned in a letter that cash reserves continued to shrink while it negotiates the rescue package. Lufthansa's board said it hoped the government would find the "political will" for a deal that would keep the carrier competitive against international airlines.
The German government and Lufthansa have been locked in intense negotiations for weeks over the rescue plan. While the Economy Ministry and Finance Ministry internally agreed on taking a stake of 25 per cent plus one share, the company had opposed the move.
Lufthansa executives had raised concerns that the terms on offer would hamstring it against international competitors who've received less stringent bailout conditions, a point the management board repeated in the letter to employees.
While the deal is finalized, Lufthansa is running out of time and money, burning through 800 million euros each month after the coronavirus grounded most of its fleet. Chief Executive Officer Carsten Spohr said on May 5 that the company had about 4 billion euros in cash remaining.
The letter to employees this week gave further details of Lufthansa's expected fleet reductions for the coming years. The board said it expected 300 of its aircraft would remain grounded in 2021 as demand for flying recovers only slowly, with 200 remaining out of service into 2022.
Lufthansa had previously said it expected its pre-crisis fleet of around 760 aircraft to be around 100 smaller once normality returns around 2023, a forecast it stuck to in the letter.