Parked Lufthansa 747s at Frankfurt. (Photo: AirlineGeeks | Fabian Behr)
German-based Lufthansa Group announced that the German government had approved a large financial stabilization package for the airline group in response to the COVID-19 pandemic. The total package will equate to about 9 billion euros ($9.8 billion) for the operating group. Along with Germany, Lufthansa owns airlines in Austria, Switzerland and Belgium.
This announcement comes following weeks of negotiations between the airline and the federal government in Germany. Initial reports from earlier this month were that the bailout was going to be in the ballpark of 10 billion euros and a 25 percent stake in the airline group being purchased by the government.
The financial package is a mix of both loans and other measures of stabilization as the airline looks to rebound from a significant decline in travel that has been caused as a direct response to the worldwide pandemic.
The Economic Stabilization Fund, also known as the WSF, includes up to 5.7 billion euros in silent participation in the assets of the group. In the financial world, silent participation is a method of investment that allows the investor to receive a participation in the profits of the company that they are putting money into.
For Lufthansa, these silent participations include 4.7 billion euros in equity and will last for an unlimited amount of time. The carrier will have control of the termination and can choose to stop the participation at the end of any quarter, should they desire to. The remuneration for the silent participations starts at four percent for 2020 and 2021 and can rise annually until a cap of 9.5 percent is reached in 2027.
The German government will also take a 20 percent share of the company, purchasing at 2.56 euros per share, equating to a cash input of around 300 million. The WSF allows the government to increase this stake to 25 percent plus one share, should the company be taken over at any point. The WSF did state that they plan on selling these shares back before the end of 2023. In order to follow this set date, the government stated that the shares must have a minimum sale price of 2.56 euros per share plus an annual interest of 12 percent. The full repayment of silent participations must also have been met by this time.
Along with the takeover method, the government has the right to convert some of its silent participation into holdings of a further five percent in 2024 and 2026 should the company not make payments on the original participation.
While the government will financially support the airline, they will also receive two, non-voting seats on the airline’s Supervisory Board.
In a quote to the BBC, German Finance Minister Olaf Scholz said, “The support that we’re preparing here is for a limited period…When the company is fit again, we will sell its stake and hopefully…with a small profit that puts us into a position to finance the many requirements we have to meet now.”
The specific package for the airline is subject to the approval of the airline’s management board and supervisory board, while overall the WSF is subject to approval by the European Commission.
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