Friday, 26 June 2020

Lufthansa shareholders go for the deal....

Yesterday was an important day in the history of the Deutsche Lufthansa group when its shareholders voted in favour of accepting the Economic Stabilisation Fund (WSF) of the Federal Republic of Germany bailout. 

This package includes loans of up to €9 billion, the WSF will make silent capital contributions of up to €5.7 billion euros to Lufthansa AG. It will also establish a 20 percent stake in the share capital of Deutsche Lufthansa AG by way of a capital increase. This capital increase was approved at today’s Extraordinary General Meeting. 

Quite crucial for the deal to go ahead was the shareholders agreeing to grant two conversion rights for parts of the silent capital contributions. These conversion rights are intended, on the one hand, to safeguard the Federal Government in case of a takeover of Lufthansa and, on the other hand, to secure the interest payments for the silent capital contribution. Both conversion rights can be transformed into a further five percent of the company’s share capital should these conditions be met. The package will be supplemented by a loan of up to 3 billion euros with the participation of KfW and private banks.

Photo Lufthansa
Carsten Spohr, Chairman of the Executive Board of Deutsche Lufthansa AG says: “The decision of our shareholders provides Lufthansa with a perspective for a successful future. On behalf of our 138,000 employees, I would like to thank the German federal government and the governments of our other home countries for their willingness to stabilize us. We at Lufthansa are aware of our responsibility to pay back the up to 9 billion euros to the taxpayers as quickly as possible.”

As a result of the resolution of the Extraordinary General Meeting, the company’s liquidity is secured on a sustained basis. The companies of Lufthansa Group are working at full speed to get their operations up and running again. The airlines’ flight schedules will, therefore, be consistently expanded in the coming weeks. The flight schedule for the next few weeks will be published at the beginning of next week. The plan is to include 90 percent of all originally planned short-haul destinations and 70 percent of all long-haul destinations in the flight schedule again by September. 

Around 30,000 shareholders attended the Extraordinary General Meeting. A total of 39.0 percent of the share capital was represented. Of these, 98 percent of the capital present voted to accept the company’s proposed resolution. This means that far more than the necessary two-thirds majority voted in favour of adoption.

The European Commission had already approved the stabilization package before the start of the Extraordinary General Meeting.

A decision on the approval of the stabilization measures in the other home markets of Lufthansa Group will be made in the near future.  However, that hasn't stopped Ryanair raising a complaint, something the budget carrier always does when it doesn't like a decision. The airlines Michael O’Leary said: “This is a spectacular case of a rich EU Member State ignoring the EU Treaties to the benefit of its national industry and the detriment of poorer countries. Under the pretext of Covid-19, the German Government is giving Lufthansa a bank-breaking bailout of €9bn which even the airline’s own CEO admits it does not need."

Photo Ryanair 
Despite the deal already being approved by the EU, O’Leary contest that position, "In clear breach of European competition rules, Berlin is wasting vast amounts of taxpayers’ money to prop up an uncompetitive airline that should be putting its own house in order instead of once again running to the Government for help."

The bullish airline boss also had a sark warning: "This and other bailouts will have a more devastating long-term effect on the future of European aviation than the pandemic itself."

Of course, this is after Ryanair has taken taxpayers money and promised to wage a price war this summer on all its rivals, with O’Leary saying he's happy to run the airline at a loss for the rest of the year as long as he can fill all the seats on Ryanair aircraft.  

O’Leary says; "The contrast between Lufthansa and Ryanair could not be starker.  Instead of touring Europe’s capitals for taxpayer-funded hand-outs, Ryanair is innovating its way out of the crisis by giving consumers lower fares and connectivity at a time when Europe’s regions and cities desperately need the revival of tourism and their local economies."

The budget carrier is not exactly blameless,  it regularly takes backhanders to operate services into little known and out of city centre airports, it demands lower charges from airports in order to keep flying there, it blackmails staff into accepting inferior pay and conditions - the latest example of which happened at Vienna when the staff of its Rynaiar's Austrian Lauda operation failed to cave in to the parent firms demands for lower pay, so O’Leary ordered the closure of the base. 

"The Commission’s approval of the Lufthansa bailout today is a betrayal of the core principles of EU law, which we have no alternative but to refer to the EU General Court." O’Leary promised, far happier to pay legal fees than he is to pay his own staff wages.

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