Vestager defends EU approach to Lufthansa mega bailout, as carrier agrees terms

EU competition boss Margrethe Vestager said her services are not setting hurdles for the Lufthansa deal. [Photo: EC]

Updated with latest developments

EU competition chief Margrethe Vestager said on Friday (29 May) that the European Commission was not creating unnecessary obstacles to Lufthansa’s €9 billion bailout, shortly before the carrier’s executive board agreed to accept the Commission’s set of conditions.

The airline is set to transfer up to 24 lucrative takeoff and landing slots to competitors at  both Frankfurt and Munich airports, in order to address competition concerns caused by the German government’s decision to take a significant stake in the carrier.

According to Lufthansa, it will offer its slots to other European airlines that do not currently operate at the hubs and which have not received significant state aid themselves, through a bidding process. If they are unclaimed after 18 months, existing competitors will be eligible.

Those initial terms rule out Lufthansa’s Gulf State competitors, fellow legacy airline Air France-KLM and low-budget flyer Ryanair, which already operates out of Frankfurt and Munich.

Lufthansa said in a statement that “the scope of the conditions required in the EU Commission’s view has been reduced in comparison with initial indications”, which reportedly involved the sale of even more slots without strict requirements.

Earlier on Friday, Vestager told reporters that an assessment of the airline’s virus aid was still ongoing but was a “high priority”. Even though Brussels has relaxed its state aid rules, large-scale bailouts still need to be approved.

Lufthansa’s supervisory board on Wednesday (27 May) had refused to sign off on the package, which would see the German government take a 20% stake in the company, citing the Commission’s conditions as an unacceptable part of the deal.

Lufthansa board baulks at EU bailout terms

The board of German airline Lufthansa refused to accept the conditions of a €9 billion aid package on Wednesday (27 May), citing the European Commission’s reported requirement that the carrier give up some airport slots at two of its major hubs.

When asked if the Commission’s criteria were too strict, Vestager said “no, we are not creating extra hurdles. What we are doing is to make sure that when a company with market power and recapitalisation of more than €250 million, that disturbance of competition is remedied.”

Although Vestager did not confirm that the slots issue was the source of the dispute, the Danish official did say that “when we discuss how to remedy disturbances to competition, both in merger and antitrust cases, the slots very often become central to the debate.”

“Slots are a limited resource and are therefore valuable. For someone to compete, they need access to slots. That does not exclude other remedies but this is why slots often come onto the negotiating table,” she added.

The European Transport Workers’ Federation and European Cockpit Association both said that the Commission should reconsider the slots issue as it would risk benefitting “some of the most notorious airlines that continue to lower working standards in Europe”.

“We are talking about airlines that are involved in practices such as bogus self-employment, precarious broker agency contracts, salaries under the threshold of poverty, union busting or even violation of labour law,” the groups said in a letter addressed to Vestager.

The letter did not mention to which carriers their claims referred.

Level-playing field concerns

As part of the Lufthansa agreement, the German government will take a 20% share in the airline that can be bumped up to 25% plus one share in the event of a hostile takeover bid. Berlin has pledged not to use its voting rights except in that particular situation.

Lufthansa's €9bn virus bailout gets Berlin's blessing

German airline Lufthansa sealed a €9 billion aid package on Monday (25 May), as the government agreed to provide loans and stabilisation measures in return for a 20% stake in the carrier, with an option to increase to a blocking minority if needed.

However, the mere fact that the government is taking a stake in the airline – as opposed to the Air France-KLM group, where the French and Dutch governments are already shareholders – has set the German bailout apart from others.

“There is a fundamental difference between a loan and liquidity support. A loan will increase your indebtedness, capital will not,” Vestager explained, adding that “you also get a strong shareholder on board. It’s likely that investors and competitors will see this as a strengthening of your company.”

“Just the fact that you have the state on board as a shareholder may also trigger more trust in your viability,” the competition chief added, warning that “the economy will pick up again” and that “competitors need to be given a level playing field”.

Lufthansa did not comment on the Commissioner’s statement, although senior German government official Thomas Jarzombek said earlier on Friday that “we have a long record of finding agreement eventually”.

The aviation specialist added that the government would need to clarify the scope of the Commission’s required changes and would compare them with airline bailout deals that have already been given the go-ahead.

German MEPs Markus Feber and Daniel Caspary have both urged the Commission to approve the package as soon as possible, so that Lufthansa – reportedly losing €1 million every hour – can begin to steady the ship.

There are opponents though. Ryanair CEO Michael O’Leary has threatened to start legal action if the EU executive approves the deal, although his airline could eventually be a beneficiary from the allocation of slots if other carriers do not pick them up.

Lufthansa’s supervisory board must now approve the deal and the Commission is yet to formally give the green light.

Ryanair challenges Lufthansa's bailout package

Low-cost carrier Ryanair challenged Germany’s €9 billion rescue package for Lufthansa on Tuesday (26 May), saying it distorted competition, while the German carrier moves towards finalising the deal next month.

[Edited by Benjamin Fox]

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