Lufthansa in advanced talks for state rescue deal worth about $10 billion

Image Bloomberg

Image Bloomberg

Passenger aircraft, manufactured by Airbus SE and operated by Deutsche Lufthansa AG, sit grounded on the tarmac at Munich Airport in Munich, Germany, on Monday, May 4, 2020.

German Chancellor Angela Merkel said Wednesday that a decision would come "soon" on a potential rescue program for coronavirus-stricken airline giant Lufthansa after weeks of talks.

Lufthansa said it expected conditions of the deal to include the waiver of future dividend payments and limits on management pay, adding the package would have to be approved by the European Commission. She declined to go into details, saying: "I would give the advice: wait for the talks to end".

Lufthansa is in advanced talks over a €9 billion state bailout that would see Germany take a 20% stake in its flagship airline, as countries battle to save an aviation industry hammered by the coronavirus pandemic.

At the time, Lufthansa said the package included a non-voting capital component, known as a so-called silent participation, a secured loan, and a capital increase that would leave the government with a shareholding of up to 25% plus one share.

Earlier on Wednesday, the news magazine Der Spiegel reported that ministers in charge of any decision had put the finishing touches on the bailout package.

Around 90% of Lufthansa's regular flights have been grounded for several weeks amid the pandemic, the company is estimated to be losing in the region of a million euros an hour at present.

Under German law, a 25% plus one share stake would enable the government to block motions at the company's annual general meetings, giving it a veto over major decisions.

Lufthansa would issue the shares to the government for the nominal price of 2.56 euros, a steep discount that would allow the state to profit from any upside to the price.

The bond convertibility could be exercised by the government to stop "a takeover bid by a third party".

In the statement Thursday, Lufthansa said the company is discussing a convertible bond that can be exchanged for a further 5%, plus one share.

"The two seats in the supervisory board must now be occupied by experts, who will aim for the economic recovery of Lufthansa and who won't follow a political agenda", CDU legislator Linnemann said.

Lufthansa executives have raised concerns that the terms on offer would hamstring it against global competitors who've received less stringent bailout conditions, a point the management board repeated in the letter.

The commission declined to comment Thursday on specific cases.

Chief executive Carsten Spohr has said Lufthansa - which also includes subsidiaries Austrian and Brussels Airlines, Eurowings and Swiss - is bleeding "about a million euros in liquidity reserves per hour".

The letter to employees gave further details of Lufthansa's expected fleet reductions for the coming years.

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