Lufthansa working with banks on $3.7 billion capital raise

Deutsche Lufthansa AG is working with banks on a plan to raise about 3 billion euros ($3.7 billion) in equity to help repay its state coronavirus bailout, according to people familiar with the matter.

The timing and size of the capital increase will be subject to market conditions and could come as soon as June, the people said.

Europe’s largest airline received a 9 billion-euro state bailout last year after the coronavirus pandemic ended a decades-long boom in air travel. The new funding would provide enough cash to repay a chunk of a 5.5 billion-euro silent participation still held by the German state. Lufthansa’s executive pay and M&A activity is restricted until it’s repaid the government.

A spokesman for Lufthansa declined to comment. Shares of the carrier group, which also includes Swiss, Brussels Airlines and Austrian Airlines, have gained around 5% since the start of the year.

Shareholders granted approval last week for a potential capital raise of 5.5 billion euros. Lufthansa had previously said it wouldn’t use the full amount available, and instead aim for the “smallest possible” increase.

Lufthansa continues to lose money as the coronavirus pandemic restricts global travel. The airline reduced its monthly cash drain to 235 million euros in the first quarter, and expects that figure to narrow to 200 million euros per month in the current period, helping it to a smaller operating loss than the 5.5 billion euros posted last year.

The interest rates on the silent participation, a debt-equity hybrid instrument that doesn’t dilute shareholder voting rights, are set to rise over coming years.

Reuters reported earlier on the size of the planned deal.

Condor Dispute

Lufthansa and German rival Condor in separate statements said they have reached an agreement to continue a feeder-flight deal until early May 2022. To try and profit from any recovery in tourist travel, Lufthansa had earlier halted the half-century old arrangement, starving the smaller carrier of business on flights to many of the same destinations.