Lufthansa and German Government Come to $9.8 Billion Rescue Package Agreement

The German government and airline Lufthansa have agreed on a $9.8 billion rescue package this week.

Lufthansa and Berlin had been in discussions for weeks over a rescue that would help the struggling airline.

The agreed plan includes Germany taking a 20% stake in Lufthansa, which it plans to sell by the end of 2023. Germany will buy the new shares at the nominal value of 2.56 euros apiece for a total of about 300 million euros.

The German Finance and Economy Ministries announced on Monday that Lufthansa was an operationally healthy company before the coronavirus outbreak, was profitable and had good prospects for the future but had got
into trouble because of the pandemic.

According to Lufthansa, the conditions of the deal include the waiver of future dividend payments and limits on management pay. The government will also fill two seats on the supervisory board, one of which is to become a member of the audit committee.

Finance Minister Olaf Scholz said the rescue package was a “very, very good solution.”

“The support that we’re preparing here is for a limited period,” he said.

“When the company is fit again, the state will sell its stake and hopefully … with a small profit that puts us into a position to finance the many, many requirements which we have to meet now, not only at this company,” he added.

The government will also inject 5.7 billion euros in non-voting capital, dubbed silent participation, into the company, which will carry a coupon of 4% in 2020 and 2021, increasing to 9.5% by 2027 to encourage fast repayment.

Lufthansa will also receive a 3 billion euro loan from state-backed bank KfW and private banks with a term of three years.

The deal still needs approval by shareholders as well as the European Commission.

Disclaimer: We have no position in Deutsche Lufthansa AG (OTCMKTS: DLAKY) and have not been compensated for this article.