Germany stamps authority on Lufthansa with $9.8 billion lifeline

FILE PHOTO: Aircraft of the German carrier Lufthansa are parked on the tarmac, as the spread of the coronavirus disease (COVID-19) continues, at the airport in Frankfurt, Germany March 24, 2020. REUTERS/Ralph Orlowski/File Photo

FRANKFURT/BERLIN (Reuters) – Germany threw Lufthansa (LHAG.DE) a 9 billion euro ($9.8 billion) lifeline on Monday, agreeing a bailout which gives Berlin a veto in the event of a hostile bid for the airline.

The largest German corporate rescue since the coronavirus crisis struck will see the government get a 20% stake, which could rise to 25% plus one share in the event of a takeover attempt, as it seeks to protect thousands of jobs.

Lufthansa has been locked in talks with Berlin for weeks over aid it needs to survive an expected protracted travel slump, with the airline wrangling over how much control to yield in return for financial support.

Germany’s central government has spent decades offloading stakes in companies, but remains a large shareholder in former state monopolies such as Deutsche Post and Deutsche Telekom. Berlin also still has a 15% holding in Commerzbank (CBKG.DE), which it took on during the global financial crisis.

Other airlines including Franco-Dutch Air France-KLM (AIRF.PA) and U.S. carriers American Airlines (AAL.O), United Airlines (UAL.O) and Delta Air Lines (DAL.N) have also sought state aid after the coronavirus hit global travel.

Germany’s Finance and Economy Ministries said on Monday that Lufthansa, whose shares closed up 7.5% at 8.64 euros, had been operationally healthy and profitable with good prospects, but had run into trouble because of the pandemic.

“The support that we’re preparing here is for a limited period,” Finance Minister Olaf Scholz said of the deal, under which Germany is buying new shares at the nominal value of 2.56 euros apiece for a total of about 300 million euros.

Berlin, which has set up a 100 billion euro fund to take stakes in companies struck by the coronavirus crisis, said it plans to sell the Lufthansa stake by the end of 2023.

“When the company is fit again, the state will sell its stake and hopefully … with a small profit that puts us into a position to finance the many, many requirements which we have to meet now, not only at this company,” Scholz added.

Conditions of the deal include the waiver of future dividend payments and limits on management pay, Lufthansa said, adding that the government will also fill two seats on its supervisory board, with one becoming a member of the audit committee.

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