Lufthansa agrees bailout terms with German government

After many weeks of protracted negotiations, Deutsche Lufthansa AG (Lufthansa), Germany’s largest and Europe’s second-largest carrier has announced it has come to a deal with the German government over a rescue package valued at €9.0 billion. The airline, which also includes subsidiaries Germanwings, Austrian Airlines, Swiss International Airlines and Brussels airlines has agreed to give the government a 20% stake in the carrier through the German Economic Stabilization Fund set up to assist companies hit by the Covid-19 pandemic.

The government is injecting up to €5.7 billion into the airline, earning a return that starts at 4% this year and next before increasing. The package will also include a three-year credit facility of up to €3.0 billion, most of which will come from Germany’s state-owned development bank, KfW. Additionally, the government will acquire a 20% stake in Lufthansa for €2.56 per share, or approximately €300 million, with an option to increase its stake to 25% plus one share, enabling it to block any potential takeover. It has agreed to sell its shares in full by the end of 2023, subject to full repayment of its investment and the share price being above the purchase price.

“Before the pandemic, the company was healthy and profitable and had good prospects for the future, but it faces an existential emergency because of the current corona crisis,” the government said in a statement. “The federal government’s stabilization package takes into account the needs of the company as well as the needs of taxpayers and employees of the Lufthansa Group.”

However, it is not all positive news for Lufthansa as, having posted a first-quarter 2020 loss of €1.2 billion, it will be shutting down its low-cost subsidiary Germanwings, while also shedding 10,000 jobs. (€1.00 = US$1.09 at time of publication.)