Lufthansa shareholders and the European Commission both approved Berlin’s €9 billion rescue package on Thursday (25 June), as the German airline continues to struggle to ride out the economic slump caused by the coronavirus.
At the end of May, the German government agreed to shore up its flag-carrier’s dire financial situation in return for a 20% stake, as Lufthansa reported a first quarter loss in excess of €1 billion due to a complete collapse of air travel demand.
In the first week of June, the airline’s supervisory board voted in favour of the agreement’s conditions, which will include two government-appointed representatives joining their ranks and an option to take a 25% stake to fend off hostile takeovers.
Around 30,000 Lufthansa shareholders then tuned in to a virtual general assembly earlier today, where 98% voted in favour of accepting the deal as it is. A two-thirds majority was needed.
“I am firmly convinced that our great company with its exceptional employees will continue to be successful globally. Together we will lead Lufthansa into a successful future,” CEO Carsten Spohr told the meeting before the vote.
Spohr also acknowledged Lufthansa’s slow progress in compensating passengers whose flights have been cancelled. “I assure you: every customer who wants a refund will get their money back,” he said, pledging to clear a backlog worth hundreds of millions of euros within six weeks.
An agreement had looked on shaky ground last week when the firm’s largest shareholder, railway billionaire Heinz Hermann Thiele, suggested that he would vote down the deal. His 15% stake in the airline will be diluted when the government comes on board.
Thiele’s threat prompted Spohr and the carrier’s leadership to bring forward staff salary payments by three days and to step up insolvency planning. Shortly before the meeting though, Thiele relented and told German media he would support the agreement.
The positive vote moves the wider Lufthansa Group further towards its goal of securing public aid for all of its subsidiaries. The Swiss and Austrian governments have already pledged €1.5 billion and €450 million, respectively, while talks are still ongoing with the Belgian government.
Blessings be upon EU
Earlier in the day, the EU’s competition regulator gave the green light to the deal, approving €6 billion in recapitalisation measures after previously clearing €3 billion in state-backed loans.
“This substantial amount of aid will help Lufthansa weather the current coronavirus crisis, which has hit the airline sector particularly hard,” said Commission Executive Vice-President Margrethe Vestager.
The EU’s competition chief also highlighted the strings that her services have attached to the deal, which includes Lufthansa foregoing a certain number of airport slots at its Frankfurt and Munich hubs.
“This gives competing carriers the chance to enter those markets, ensuring fair prices and increased choice for European consumers,” the Danish official added.
Lufthansa will be obligated to divest from 24 slots and other airlines will be allowed to bid for up to four at each airport. During the first 18 months, EU airlines that do not have bases at the airports already will be eligible to bid for the slots.
If there is no take-up during that period, existing operators will be given the opportunity to expand. The requirement will only come into force once an airport slot waiver granted by the EU elapses, which is currently due to do so in late October.
Subsidiaries Brussels Airlines, Austrian Airlines and Swiss will not be allowed to take advantage of the slots.
Lufthansa will be banned from acquiring stakes in competitors of more than 10% until 75% of the government’s investment is repaid. That rules out the German carrier from taking control of any airlines that may fail to ride out the pandemic slump.
The Commission’s decision also confirms that dividends and share by-backs will be prohibited until Lufthansa has paid back the state in full. A moratorium on management bonuses will also be in force until the 75% benchmark is achieved.
Low-cost flyer Ryanair had pledged to launch legal action against the Commission if the EU executive were to give the bailout its approval. CEO Michael O’Leary has repeatedly said that airlines should not be granted state aid if they cannot support themselves.
“We have said to the Commission we will appeal all other decisions and all approvals: the same goes for today’s approval of aid to Lufthansa,” said Ryanair chief legal officer Juliusz Gomorek.
Earlier in the week, the Irish airline filed a price-fixing complaint against Lufthansa with the Commission’s competition services.
[Edited by Zoran Radosavljevic]