Germany Will Take Lufthansa Stake in Landmark $9.8 Billion Bailout
Germany will offer Deutsche Lufthansa AG a 9 billion-euro ($9.8 billion) bailout that thrusts the state back into the heart of a company privatized with fanfare two decades ago.
The aid package involves taking an initial 20% stake that could rise to a blocking minority of 25% plus one share in the event of a hostile takeover, the carrier said in a statement on Monday. The plan, which requires European Union approval and will almost certainly be challenged by rival airlines such as Ryanair Holdings Plc, gives Germany an effective veto over company strategy.
German Finance Minister Olaf Scholz said the state’s investment would be temporary, but he also stressed that the timing of an exit would depend on the pace of Lufthansa’s economic recovery.
“When a state spends that much money, it has the obligation to make sure that this investment does not come at the taxpayers’ expense,” Scholz said.
Like airlines the world over, Lufthansa is fighting for survival as restrictions to contain the coronavirus puncture a decades-long aviation boom. The company plans to operate fewer aircraft when flights resume and is closing discount arm Germanwings to resize for what it warns could be years of depressed demand.
The package represents the biggest corporate rescue in Germany during the pandemic crisis. It’s also the only one that involves a direct investment by Chancellor Angela Merkel’s government, but more may be coming. The government set up the 100 billion-euro fund to buy stakes in stricken companies as part of its effort to stabilize Europe’s largest economy.
Biggest Bailout Yet Lufthansa tops list of German companies recently securing state aid
Source: Company releases.
As part of the deal, the government will pay about 300 million euros for new Lufthansa stock at the discount price of 2.56 euros, the nominal value of its shares on the balance sheet. Lufthansa shares, which have nearly halved this year, closed at 8.64 euros in Frankfurt trading.
The deal also includes a 5.7 billion-euro investment via a so-called silent participation -- a debt-equity hybrid instrument that wouldn’t dilute shareholder voting rights. The company will pay a guaranteed dividend on the investment of 4% in 2020 and 2021, rising to 9.5% in 2027. A portion of the silent participation can be turned into 5% of Lufthansa’s stock if the company doesn’t pay the guaranteed dividend, according to the statement.
The state will also back a three-year loan of 3 billion euros.
The government aims to sell its stake by the end of 2023. Exiting the holding depends on Lufthansa repaying the aid and the share price being above the purchase price plus interest.