A couple of days ago it was revealed that the German government and Lufthansa Group had tentatively come to an agreement for up to €9 billion in aid. Well, that plan has hit a roadblock.
Lufthansa board rejects bailout package
During a meeting today, the Lufthansa Group Supervisory Board has discussed the package offered by the Economic Stabilization Fund (WSF) of the Federal Republic of Germany.
Based on the conditions indicated by the EU Commission, the Supervisory Board has been unable to approve the current package in connection with EU conditions. At the same time, it has acknowledged that the current option is the only viable alternative for maintaining solvency, leaving the airline in a tough situation.
What EU Commission terms is Lufthansa not happy with?
As you may recall, back when Lufthansa was in discussions with the German government, one of the main concerns was the government taking an active role in managing the airline. While the government would own a 20% stake in the airline, surprisingly that’s not the concern of the Supervisor Board (probably because the country would take a mostly hands-off approach to the investment).
Rather the concern involves the conditions that the EU Commission would potentially place on the airline. Generally EU member states are prohibited from providing financial aid to national airlines because of the impact it can have on fair competition.
In light of the current pandemic regulations have been loosened somewhat, but the concern is that Lufthansa may be required to give up some of their slots in Frankfurt and Munich in order to ensure sufficient competition.
As Lufthansa views it, this would lead to a weakening of Lufthansa’s hubs in Frankfurt and Munich, and the resulting economic impact on the company and on the planned repayment of the aid needs to be analyzed further.
Ryanair Group CEO Michael O’Leary called Germany’s aid to Lufthansa “illegal,” and vowed to fight it. I guess he’s somewhat getting his way here, at least in the short term.
Personally I’m very supportive of bringing some more competition to the German aviation market, given the near monopoly that Lufthansa has had for so long as a national airline, especially with airberlin going out of business.
We’ll have to see how this situation evolves. Lufthansa Group’s Supervisory Board isn’t approving the bailout package as was agreed upon, based on concerns about restrictions that the EU Commission could place on the airline.
I’m curious to see how this plays out, given that it’s also acknowledged that this is the only viable path forward for Lufthansa…