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

Filed Under: Lufthansa

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.

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…

Comments
  1. Ironically, this is one of those rare situations where the word schadenfreude is actually relevant.

  2. I’m glad the board showed some balls. The EU turned a blind eye on all the billions burned for AZ, all the labor issues with FR, and with LH the EU thinks they can use them as an warning to others over “unfair state aid”? SMH

  3. Schrodinger’s bailout: they want to remain free of government intervention, but they want the government to employ protectionist measures in their favour

  4. This is just negotiation at this point. LH knows the government will support them so they don’t just take the first possible deal. It was a healthy company before the crisis anyway.

    And the monopoly argument doesn’t count. Easyjet even has some domestic routes in Germany and for long haul travel you have tons of options too. Being smaller than the state of California Germany doesn’t need a second airline, since LH also competes with train services – MUC-TXL suffered big because of this.

  5. Sorry but let them fail then. I am sick and tired of the complaining from the airlines while small businesses, servers and independent contractors suffer. The bailout would have ensured Lufthansa employees have jobs to include the board of directors. Enough is enough.

  6. Frankfurt and Munich are so important for Lufthansa because they work as big hubs.

    In contrast to France, Spain and the UK where economy and people are centralized around the respective capitals (Paris, Madrid, London), Germany is a decentralized country where population and economy are equally distributed around the country. In fact, Berlin is also the only capital city worldwide that is poorer than the national average.

    Just giving some competitors a few slots in FRA and MUC will not introduce significant competition, as these 2 airports are not about O&D traffic like CDG and LHR but mostly about hubbing passengers to other places. In FRA there should be enough free slots anyway with the newest runway and the new Terminal opening soon. After the downfall of AirBerlin there are also more than enough slots and gate space in MUC.

  7. it sounds like the EU has not actually reviewed this yet, so nobody knows what conditions they might place on the deal. As a board member, I don’t think I would be willing to approve the deal either, until I had more clarity on what the EU will decide.

  8. I don’t think “bringing some more competition to the German aviation market” is an outcome that’s even possible after a downturn like this. The existing players are fighting for survival and this environment won’t attract new entrants or new capital for quite some time.

  9. @Ben:
    A more precise/correct translation of the German source is:
    Lufthansa has postponed (verschoben) the decision whether or not to accept the government aid.
    A general meeting (Hauptversammlung) Is To be rescheduled.

  10. @ Sean M.
    Why use a complicated German word like schadenfreude, when there’s such an easy and we’ll know equivalent in the English language: epicaricacy! 😉

  11. The Lufthansa Board was unable to approve the bailout due to conditions required by Mysterious New EU Commissioner – “Machiel Von Leary”

  12. If you can’t run a company successfully and need outside help, well you have to give up some control, that is the way it goes.

  13. @Bitzer and @Airfarer

    Mine too.
    Great word. And Youtube taught me how to pronounce it.

    epi-CAR-icacy

  14. I hear that an airline’s liquidation also weakens their hubs, so an odd argument for them to make when the alternative is going out of business.

  15. @Max, as a former MUC resident, mostly agree with what you say, especially that “Germany is a decentralized country where population and economy are equally distributed around the country.” But one consequence of this decentralization is that there is a lot of internal business travel within Germany, which right now is very expensive. Last minute flights between MUC and BER can be very cheap because EasyJet flies that route, while last minute flights between MUC and FRA or HAM tend to be very expensive. Internal German flights are a cash cow for LH.

    LH is rightfully concerned that once EasyJet and RyanAir break into their fortress hubs, their cash cow will go away.

  16. 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.

  17. 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.

  18. 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.

  19. 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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