Lufthansa wins EU backing for state rescue as key vote looms

By: AFP      Published: 05:52 PM, 25 Jun, 2020
Lufthansa wins EU backing for state rescue as key vote looms

German airline Lufthansa was poised to clear a key shareholder vote on its nine billion euro ($10 billion) state rescue Thursday, boosted by the EU's green light and the last-minute backing of a billionaire investor who had the power to veto the plan.

The European Commission said it had approved the German government's six billion euro cash injection to keep Lufthansa afloat as the coronavirus pandemic pummels the airline industry, but imposed strict conditions.

The massive rescue package also includes three billion euros in public loan guarantees and would see Berlin taking a 20 percent stake in the airline giant. Shareholders are holding a historic virtual meeting from 1000 GMT to vote on the bailout, with CEO Carsten Spohr warning that Lufthansa could be forced into bankruptcy if they reject it.

The company's biggest shareholder, German billionaire Heinz Hermann Thiele, had voiced scepticism about the deal in recent days, raising fears he could use his 15.5 percent stake to torpedo the plan. But on the eve of the make-or-break vote, Thiele told the Frankfurter Allgemeine Zeitung he would back the plan that will dilute his shareholding.

He said an insolvency had to be avoided even if he still had doubts about the bailout, in a nod to his concerns about the government climbing on board. "It is in the interest of all Lufthansa employees that management can quickly begin talks about the necessary restructuring," Thiele said.

Dozens of Lufthansa employees rallied at Frankfurt airport early on Thursday, many wearing the carrier's high-visibility yellow vests and face masks to curb the spread of the virus.  "Lift us up where we belong, vote yes!" read one sign carried by a demonstrator, while another said "We are Lufthansa, we are family".

Job fears

Even with the government aid, Lufthansa has warned it may have to slash thousands of jobs as travel demand is expected to stay below pre-pandemic levels for years. But in more good news for the beleaguered group, it struck a deal with German flight attendants' union UFO late Wednesday to cut 500 million euros in costs by 2023 while avoiding cabin crew layoffs.

The savings will be achieved through measures including pay freezes, reduced flight hours, early retirement and unpaid leave, both sides said. The deal still needs to be approved by union members but UFO spokesman Nicoley Baublies said it "brings urgently needed job security" for Lufthansa's 22,000 flight attendants.

The powerful Verdi union meanwhile urged other shareholders to follow Thiele's lead and "end an existential threat for almost 140,000 employees globally and their families". Shareholders representing just 38 percent of Lufthansa's capital have registered to participate in Thursday's special meeting.

Because of the low turnout, a two-thirds majority will be needed to pass or block the rescue package. German Finance Minister Olaf Scholz urged investors to support the plan, painstakingly hammered out in weeks of talks between ministers and Lufthansa bosses. "The offer on the table is a good one and Lufthansa shareholders should take it," he said.

Tough conditions

As part of its okay, the European Commission said Lufthansa would have to make room for rivals at the Frankfurt and Munich airports to ensure fair competition. It also put limits on any acquisitions of Lufthansa rivals and banned dividends until the state aid is repaid.

Nevertheless, rival carrier Ryanair immediately announced it would challenge Lufthansa's state aid in an EU court. Lufthansa's climb out of the coronavirus storm promises to be long and arduous as countries emerge from lockdown and air travel slowly resumes. By September, the group expects its timetable to remain 60 percent below pre-pandemic levels.

Further into the future, around 100 of Lufthansa's present fleet of 763 aircraft will likely be surplus to requirements. Elsewhere in the group, Vienna granted subsidiary Austrian Airlines aid totalling 450 million euros, while Swiss and Edelweiss received loans totalling 1.2 billion euros from Bern. Talks continue with the Belgian government over Brussels Airlines, which plans to shed 1,000 jobs.

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