The supervisory board of Deutsche Lufthansa approved Germany's $10 billion bailout proposal, paving the way for the airline to receive the lifeline should shareholders accept the deal.
With the carrier's cash reserves dwindling, Lufthansa's supervisory board voted in favor of the plan and called an extraordinary general meeting of stockholders for June 25. The board's approval was unexpectedly delayed last week after members balked at European Union demands for slot disposals, a matter resolved in a deal sealed late Friday.
The spotlight now turns to the investors, who hold Lufthansa's fate in their hands. They face a choice between a capital increase that will dilute their own shareholdings or tipping Europe's biggest airline toward insolvency. Lufthansa's management has told German government officials and labor representatives that it will run out of cash June 15, people familiar with the matter have said.
Lufthansa supervisory board Chairman Karl-Ludwig Kley said it had been "a very difficult decision" involving "intensive discussion."
"We recommend that our shareholders follow this path, even if it requires them to make substantial contributions to stabilizing their company," Kley said in a statement. "It must be clearly stated, however, that Lufthansa is facing a very difficult road ahead."
A German government stabilization fund will receive a 20% stake in the airline.
With Lufthansa fighting for survival after the coronavirus fallout pushed revenue toward zero, Germany last week offered the carrier a package of loans and equity investment to keep it afloat. But after the EU demanded it give up slots, the airline's supervisory board unexpectedly held off on accepting the lifeline -- throwing the rescue plan into turmoil after weeks of talks.
Monday's breakthrough comes after the German government agreed that Lufthansa will reduce its presence at airports in Frankfurt and Munich by four aircraft each. The accord would give a toehold to new competitors hoping to challenge the dominant German carrier at its fortress airports.
Lufthansa's bailout will be a precedent for Air France-KLM and other airlines that could force them to give up slots in exchange for government support, the EU's antitrust chief said Monday.
Air France-KLM has received the bloc's approval for a loan from the French government and has said it may seek additional recapitalizations.
"If they come back for recapitalization, of course, they will be in the same category as Lufthansa has been," EU Competition Commissioner Margrethe Vestager told Bloomberg TV. "That goes without saying because we have an obligation of equal treatment."
The EU still has to approve other aspects of a deal that will make Germany the carrier's biggest shareholder, thrusting the state back into the heart of a company privatized with fanfare more than two decades ago.
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Like airlines the world over, Lufthansa has been struggling for survival after the coronavirus punctured a decades-long aviation boom. The company expects its fleet to be 100 aircraft smaller post-crisis, implying the loss of 10,000 jobs.
"The expected slow market recovery in global air traffic makes an adjustment of our capacities unavoidable," Chief Executive Officer Carsten Spohr said Monday. "Among other things, we want to discuss with our collective bargaining and social partners how the impact of this development can be softened in the most socially acceptable way possible."
Lufthansa also said it will publish its interim report for the first quarter Wednesday.
Information for this article was contributed by staff members of The Associated Press.
Business on 06/02/2020