Germany prepares to take stake in Lufthansa in bailout

FRANKFURT (BLOOMBERG) - Germany is preparing to take a stake in Deutsche Lufthansa as part of a multibillion-euro rescue package to help the carrier weather the coronavirus pandemic, according to people familiar with the matter.

A decision is expected in the coming days for an overall aid package that could amount to more than double the company's market value of €4 billion (S$6.15 billion), said one of the people, who asked not to be named because the talks are private. One option being discussed could include giving the government seats on the board and the power to block strategic decisions, a person said.

A spokesperson for Lufthansa declined to comment, while a government official said negotiations are ongoing.

On Tuesday (April 28), Business Insider reported that Lufthansa is poised to get a €9 billion rescue package from Germany that would give the government a stake in the struggling airline, seats on its supervisory board and influence to block strategic decisions. The carrier and the government aim to seal the deal during talks later on Tuesday, it said, citing airline sources. The shares rose as much as 12%.

German Chancellor Angela Merkel's government has been haggling for weeks over the planned lifeline as Lufthansa loses €1 million an hour after travel restrictions decimated the global industry. Lufthansa chief executive officer Carsten Spohr warned last Friday that the carrier could face a liquidity crunch in a few weeks and would need state aid.

A bailout would follow an even bigger package for European rival Air France-KLM, which was unveiled on Friday by French and Dutch finance ministers and came after weeks of talks between the airline, banks and the governments. France and the Netherlands pledged as much as 11 billion euros in loans and guarantees that the carrier had said were crucial to its survival. Lufthansa and Air France-KLM are the region's two biggest carriers by passenger traffic and considered by the states as too important to fail.

German Economics Minister Peter Altmaier has favored a silent participation and a loan package to help Lufthansa through the crisis, but the Social Democrats, Germany's junior coalition partner, has demanded far-reaching control over the day-to-day running of the company in return for a multibillion-euro rescue package.

While the Social Democrats seek a veto right with the stake and government representation on the supervisory board, Dr Merkel's party block wants to lower the active stake to below 25 per cent to avoid making the German carrier too political. German government officials came close to hammering out an accord with Lufthansa on Monday, but discussions about the state taking a stake and the limiting of political control are still ongoing, one person said.

Companies like Lufthansa should "have the opportunity to get back on their own two feet and turn a profit", Mr Altmaier said on local radio on Monday.

The company also operates so-called national flag carriers in Austria, Belgium and Switzerland, which could also be involved in the bailout. The willingness of France and Germany to shore up their ailing champions comes after the International Air Transport Association repeatedly warned the health crisis could bankrupt half the world's airlines, with the hit to European carriers expected to reach US$89 billion (S$126 billion) in lost sales.

In an ominous sign for airline employees in the region, Scandinavia's main airline SAS is cutting as many as 5,000 jobs or about 40 per cent of its workforce, becoming the first major European carrier to permanently slash staff numbers following the outbreak of the virus.