Sunday, 31 May 2020

Lufthansa say yes to revised deal for 9 billion euro bailout

The board of the Germany based airline group, Lufthansa has agreed to a new deal offered by the Economic Stabilization Fund (WSF) of the Federal Republic of Germany, after turning down a previous deal that would have seen the carrier get  €9 billion in exchange for giving up 72 take-off and landing slots at its two main bases in Germany.

Many saw the previous refusal as the Lufthansa Board gambling with the livelihoods the nearly 140,000 people that work for Lufthansa, as insolvency was the only other viable option for the airline in the present circumstances.  

However, after further negotiations, the EU has backed down somewhat and the Lufthansa Board have agreed to the revised offer of giving up just 24 slots at Munich and Frankfurt, to brand new competitors - a move that will undoubtedly anger some existing carriers are the two airports. 

"The scope of the conditions required in the EU Commission's view has been reduced in comparison with initial indications. Lufthansa will, therefore, be obliged to transfer to one competitor each at the Frankfurt and Munich airports up to 24 take-off and landing rights (slots), i.e. three take-off and three landing rights per aircraft and day, for the stationing of up to four aircraft. For one and a half years, this option is only available to new competitors at the Frankfurt and Munich airports. If no new competitor makes use of this option, it will be extended to existing competitors at the respective airports." Lufthansa advised in a statement on Saturday. 

These sots to the new competitors will be allocated in a bidding process and can only be taken over by a European competitor that has not itself received any substantial state recapitalization as a result of the coronavirus pandemic. 

The supervisory board needs to approve the deal, which it is expected to do during a special meeting that is being arranged next week.  Once complete the German government will hold a 20% stake in Lufthansa, and in the event of a takeover,  that would rise to 25% plus one share.  

The news has not been unilaterally welcomed,  the low-fare-high-fee budget carrier Ryanair has already called on the German Chancellor Angela Merkel to abandon the plans of what it calls illegal State Aid, despite the fact that the EU has already ruled it legal.

Ryanair, itself already accepting aid from governments, said Merkel to scrap this illegal State Aid scheme and should replace it with a different scheme. Something that would reduce air travel taxes for all airlines operating in Germany for the next 24 months.  

Ryanair’s Group CEO Michael O’Leary bemoaned: "If Lufthansa do not want to hand over slots, or give the German Govt the effective Board representation they are entitled to in return for a State subsidy of €9bn, then Mrs Merkel should say “buzz off” Lufthansa, and instead reduce air travel taxes for all airlines operating in Germany. Lufthansa would be the major beneficiary of any such tax reductions, but it would also encourage other airlines, including Ryanair, Laudamotion and EasyJet, to return to flying and pass on lower fares to consumers."

"Carsten Spohr has played a blinder during the Covid-19 crisis. He is probably the first man in history to demand €9bn from Mrs Merkel, then tell her to “buzz off” when she wants Board seats and/or slot remedies."  O'Leary said,  although it was not Carsten Spohr that said no to the previous deal,  it was the Lufthansa board.  

O'Leary added: "It’s time for Mrs Merkel to tell Lufthansa to “buzz off” and bring an end to these illegal State Aid demands from the “subsidy junkie” Lufthansa."

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