Coronavirus Economy: Lufthansa, Germany Reach $9.8 Billion Bailout Deal

The German government Monday agreed to a nine billion euro ($9.8 billion) rescue package for Lufthansa (LHA.DE), which has suffered severe financial fallout from travel bans prompted by the coronavirus pandemic. Europe’s second-largest airline had been financially healthy and profitable before the pandemic hit.

The deal, which had been in the works for weeks, is the largest German corporate rescue since the pandemic hit and the only one that involves direct investment by the government, which has a 100 billion-euro ($109 billion) fund to buy stakes in companies destabilized by the outbreak.

The deal, which needs approval from Lufthansa’s advisory board and shareholders, as well as European regulators, gives Berlin a 20% stake in the carrier, which in April said it was losing 1 million euros ($1.09 million) an hour. The government share could grow to 25% under certain conditions.

The deal is expected to face a challenge from Ryanair, the discount carrier that already has challenged an Air France bailout.

“The Executive Board also supports the package,” Lufthansa said in a statement.

The agreement does not have an expiration date and provides the government will be a silent partner although it will have two seats on the advisory board.

Most of the airline’s 760 plans currently are grounded, and CEO Carsten Spohr said the company likely has 100 more planes than it needs. Streamlined flight operations are expected to resume in mid-June, but about 300 planes are expected to remained grounded through 2021 while 200 likely will be sidelined into 2022. Job cuts also are expected, perhaps as many as 10,000.

“Before the coronavirus pandemic, the company was operatively healthy and profitable and had good prospects for the future,” the economy ministry said in a statement.

The basis of the agreement was worked out last week, sending stock prices higher. Share values have been cut in half this year, and the value of the company reduced to 4.1 billion euros (nearly $4.5 billion).

Lufthansa also secured help from Switzerland: 1.28 billion Swiss francs ($1.3 billion) in credit guarantees and is working on deals with Austria and Belgium.