The rescue package for the German aviation group is largely fixed. What will Lufthansa get from the government? What are the conditions? And what are the remaining hurdles?
The discussions dragged on for weeks. On one side, the Lufthansa Group management under CEO Carsten Spohr tried to get as little state influence on its business as possible. On the other side was the German government under Chancellor Angela Merkel, who wanted effective controls in exchange for billions in aid.
Now Lufthansa and representatives of the German Economic Stabilization Fund have largely agreed. They are «in advanced talks», the airline announced on Thursday (May 21). The talks are about «stabilization measures in the amount of up to 9 billion euros». The airline expects to conclude the negotiations «promptly».
The aid measures
Direct participation: The German government acquires a 20 per cent stake in Lufthansa via the Economic Stabilization Fund.
To do this, the Group first increases its capital – without subscription rights for existing shareholders. This means that their shares are reduced in value. In stock market slang, this is known as a dilution of capital. The fund buys the Lufthansa shares at par (currently 2.56 euros), as Lufthansa’s announcement states.
However, a hair cut may be made before the state gets involved. In such an approach, the capital is first reduced and immediately increased again with fresh funds. This is what companies do when they have suffered high losses in order to rebalance their balance sheets.
Indirect participation: At the same time the state subscribes to a convertible bond via the Economic Stabilization Fund.
This gives the Federal Republic the right to subscribe to Lufthansa shares. If it did so, it would receive another 5 per cent of the shares plus one share. Germany would then have a blocking minority.
Loan: In addition, Lufthansa also receives a loan from the state-owned bank KfW. It is to amount to three billion euros. Nothing is yet known about the interest rate.
The quid pro quo
Supervisory Board: The Economic Stabilisation Fund will be given two seats on the Lufthansa Supervisory Board, which it will fill «in consultation with the Federal Government», as the communication states.
Management remuneration: Lufthansa says it expects conditions such as «restrictions on management remuneration». This means that the development of management salaries and bonuses will probably be slowed down.
No dividends: Lufthansa also speaks of a «waiver of future dividend payments». For the time being, therefore, money may no longer flow to the shareholders – probably until the loan has been repaid.
Passive voting rights: As Lufthansa writes in the notification, the government wants to exercise the «voting rights associated with the shares as a whole only in exceptional cases such as protection against a takeover». Berlin therefore does not want to intervene in the operative and strategic business.
Not only Lufthansa’s management and supervisory board must approve the measures. The Economic Stabilisation Fund Committee must also say yes. It consists of one representative each from the Federal Chancellery, the Federal Ministry of Finance, the Federal Ministry of Economics and Energy, the Federal Ministry of Labour and Social Affairs, the Federal Ministry of Justice and Consumer Protection and the Federal Ministry of Transport and Digital Infrastructure. And then the European Union must also agree.
But the biggest hurdle is the existing shareholders. Among the largest are the German billionaire Heinz Herrmann Thiele and the funds Lansdowne Partners International and Blackrock. They are losing a lot: money and influence. If they say no, they risk losing even more: Lufthansa could go into receivership.