Uh Oh: Lufthansa Board Doesn’t Approve State Aid Package

By: Ben Schlappig

Published: May 27, 2020

25 comments

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.

In this post:

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.

Bottom line

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…

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loop86 Guest

May 28, 2020, 12:42 pm

I think the point here a lot of people are missing is, that every European carrier, even Ryanair, with the exception of Wizzair, got government aid and bailouts. Even crapy carriers like Norwegian that were basically bankrupt got money, however none of them did face any restrictions by the EU. So now a former perfectly healthy company that was basically shut down by the government, gets money from this government (as every other business in Germany does) and as a result the EU says, but you need to give us your slots and planes and give it to competition. It would be the same if only Delta would have to give slots and planes to UA and AA, despite all of them got the same help from the government, just because DL ist the biggest player.

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Creditian Guest

May 28, 2020, 9:59 am

Brussels is full of BS and eventually will cause EU dissolved.

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Andy Diamond

May 28, 2020, 4:02 am

Lufthansa's board is used take a quasi governmental role. Together with the German government itself, they have successfully kept the competition at bay for the last 30 years. Ryanair has to operate from remote airports like Hahn (HHN) or Memmingen (FFM), Easyjet is largely limited to destination with a small share of premium passengers (e.g. Berlin) and the large network airlines have been driven out except for some feeder flights to their hubs outside Germany (e.g. Deutsche BA). Now, the LH-Board faces the harsh reality that they are not the government of Germany, let alone the EU commission. It's about time.

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Richard Guest

May 27, 2020, 9:36 pm

It's sad. I love Lufthansa. I used to love their first class product on the A380. I note however, that they have started retiring their A380's. No longer flying them to Singapore. I understand that times are tough for airlines, but eventually, they will come out of this. Lufthansa has lost me from my next trip to Europe, just for dropping the A380. If I have to be in a tight cramped bathroom, I might as well save myself $4000 and fly JAL, since they are starting first class all the way from Sydney in September. The treatment of people seeking a refund has also been atrocious. I don't like the idea of airlines actively deceiving people from receiving refunds that they're entitled to. Lufthansa needs to shape up their attitude towards their customers, or they will go the way of other behemoths like Pan Am.

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Christian Guest

May 27, 2020, 7:04 pm

So Lufthansa is objecting to a slight weakening of their fortress hubs because it would slightly ease their stranglehold on the market? Wow. Just wow.

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