Lufthansa confirms talks to hand Germany 25% stake in rescue

Europe’s biggest airline is about to get an important new shareholder.

Deutsche Lufthansa AG on Thursday confirmed it’s discussing handing the German government a stake of up to 25% plus one share as part of a 9 billion-euro ($9.7 billion) bailout. A holding at that level would give state officials veto power over decisions such as job cuts and the carrier’s commercial strategy.

The talks are ongoing on a package that would also include loans and a so-called silent stake similar to preferred stock, Lufthansa said. The state-owned shares may be issued at their nominal value, providing the government with a deep discount on its investment.

In talks that have stretched on for weeks, Lufthansa has resisted government demands to gain influence in the sprawling airline group in exchange for a financial lifeline. The aviation group’s management fears state interference and the debt attached to the government’s proposals would hamstring it in competition with U.S., Asian and Gulf carriers who’ve gotten less stringent terms on state assistance packages.

While there’s been some internal debate in Angela Merkel’s ruling bloc over whether the government should take a direct stake at all, the key economy and finance ministers have settled on a unified stance informed by lessons from the 2008-2009 financial crisis. It is currently unclear if the push by some lawmakers to refrain from taking a stake will have an effect.

“Lufthansa, along with other companies, is part of the silver table settings of our economy,” Germany Economy Minister Peter Altmaier said to Bild newspaper, adding the country would do whatever it takes to save the company.

Like airlines across the world, Lufthansa is fighting for survival as the coronavirus crisis punctures a decades-long aviation boom. The company, which connects Germany’s industrial titans to far-flung export markets, plans to operate fewer aircraft when flights resume and is closing discount arm Germanwings to resize for what could be years of depressed demand. It warned last month that it risks running low on cash within weeks.

Capital Cut

Bloomberg News reported this week that the government was pressing for the 25% plus one share blocking stake at a potential price of 2.56 euros a share. That is the nominal value reported on the balance sheet—the lowest possible price at which any German company can issue new shares.

Lufthansa in its statement said it could undergo a so-called capital cut, meaning it could lower the current value even further, potentially to 1 euro per share. Buying shares at such a low level means the German government has a downside protection should the carrier’s value drop further, but it would also have a substantial gain should its shares appreciate.

Negotiating Points:

• 9 billion-euro stabilization package
• Silent participation, secured loan
• State stake be up to 25% + 1 share
• Waiver of future dividends
• Supervisory board seats for Federal Economic Stabilization Fund

Lufthansa had already secured aid from Switzerland for its unit there in the form of credit guarantees worth 1.28 billion Swiss francs ($1.3 billion) and is negotiating separate packages for divisions in Austria and Belgium.