Lufthansa Bailout Deal Might Be Impeded By One Very Unhappy, Powerful Stockholder

A €9 billion ($10.2 billion) bailout of troubled German airline Lufthansa may be obstructed by one of the carrier’s top shareholders who opposes the state funding package.

Lufthansa stockholders will vote Thursday on the proposed rescue deal which will result in the German government acquiring a 20% stake – at a steep discount -- in the carrier, as well as two seats on its supervisory board. Lufthansa, which is burning through €1 million ($1.13 million) of cash reserves each hour as most of its fleet remains grounded, has urged shareholders to vote in favor of the bailout.

But 79-year-old German billionaire Heinz Hermann Thiele – who is Lufthansa's biggest stockholder with a 15.5% stake – opposes the bailout and could conceivably scuttle the deal.

Moreover, passage of the bailout will require approval of more than two-thirds of the airline’s stockholders. Reportedly only 38% of shareholders have even registered to vote.

“Obtaining the two-thirds required to pass this bill is looking like a struggle,” Citi analysts wrote.

Thiele told the Frankfurter Allgemeine Zeitung newspaper that he did not think the government bailout was the ideal option for Lufthansa.

"The state is not the best entrepreneur," he said. "The federal government should limit itself to the financial aid packages, which are in principle very positive, and [they] should not grow into the role of a return-oriented investor.”

Like other shareholders, Thiele is also concerned about a dilution in his stake should the government acquire its own holding.

Thiele suggested the state could participate indirectly, say, through KfW, the German state-owned development bank. Thiele pointed out that Air France-KLM received a bailout in the form of loans rather than through a direct acquisition of shares by the Dutch and French governments.

On Monday, in an emergency meeting with Thiele, Germany’s Finance Minister Olaf Scholz defended the package as a "good, carefully considered proposal" that has already received the support of the European Commission.

Thiele also criticized Lufthansa CEO Carsten Spohr for the way he and his people negotiated the bailout with the government.

“I appreciate Mr. Spohr, but I’m not satisfied by his statement that everything was examined and that some ideas could not have been implemented. I believe that negotiations could have been more intense,” Thiele said.

Thiele, one of the wealthiest men in Germany, also holds a majority stake in Knorr-Bremse, a company that makes braking systems for rail and commercial vehicles. Thiele and his family earned about €3 billion ($3.4 billion) by taking Knorr-Bremse public in 2018. Thiele also owns a 50% stake in German railroad equipment maker Vossloh.

Thiele, who is believed to be worth $16.9 billion, is also a critic of German Chancellor Angela Merkel – attacking her for her immigration policy and her endorsement of sanctions against Russia.

Recent moves by Thiele suggest he is engineering some of his own plans for Lufthansa. Last week, he said he would sell off some of his holdings in Knorr-Bremse in order to raise about €750 million ($845 million). That led to speculation that Thiele might be amassing cash to increase his stake and influence in Lufthansa.

In the event the rescue bailout is rejected by Lufthansa shareholders, Thiele could conceivably step in to buy the-then very cheap shares and perhaps gain control of the airline. Mark Manduca, an analyst with Citigroup in London, suggested Thiele himself could make a loan to Lufthansa, with jets and other assets to be used as collateral.

Under this scenario, Citi wrote in a research note: “The major shareholder [Thiele] ends up with a large stake in two German industrial names and enacts a multiyear turnaround plan at Lufthansa which includes the sale-and-leaseback of valuable unencumbered fleet and the spinoff of the much-discussed… MRO [maintenance, repair, and overhaul] business.”

But Guido Hoymann, an analyst at Bankhaus Metzler in Frankfurt, said if Thiele voted against the bailout, his own stake would be jeopardized, potentially forcing Lufthansa into bankruptcy. Thus, Thiele may have no choice but to approve the rescue.

“Thiele cannot play hardball to the fullest,” Hoymann said. “All parties depend on the aid package to go through.”

It is unclear if the German government would revise the terms of the bailout should Lufthansa stockholders reject the deal. However, in May, Peter Altmaier, Germany’s economy minister, said the state will do whatever it takes to save the national airline.

A bankruptcy and the attendant thousands of job losses at Lufthansa would look very bad for Merkel’s government, already reeling from the huge fraud scandal at payment processor Wirecard.

“The aim of the board, obviously, is to avoid an insolvency and all the consequences that would bring,” Spohr said.

Lufthansa, whose shares have dropped more than 40% this year – prompting its exit from the blue-chip DAX index – also plans to cut 22,000 full-time jobs.