European Commission caves in to Lufthansa over its €9 billion bailout

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The saga of the Lufthansa bailout is finally over after the European Commission caved in to Lufthansa’s demands to – as near as matters – be given €9 billion with no preconditions.

You can read the full announcement on the Lufthansa website here.

Lufthansa hasn’t got off entirely scot free, but near enough. It’s not clear if Ryanair is able to take the deal to the courts, as it has been threatening. It wouldn’t be surprising, as the deal is specifically designed to hit Ryanair as well as boost Lufthansa.

Lufthansa A340

What are the terms of the Lufthansa bailout?

As a reminder, the Supervisory Board of Deutsche Lufthansa refused to accept the terms of the €9 billion bailout which the main board had agreed on Monday.

It’s not as if the €9 billion had to be repaid. Only €3 billion was in the form of a loan. The rest of the investment carried heavy interest payments, to encourage the airline to pay it back, but there was no obligation to do so.

The proposed structure was:

€300 million to acquire a 20% shareholding

€5.7 billion in redeemable non-voting shares, of which €4.7 billion will carry a guaranteed 4% yield, rising in stages to 9.5% by 2027

€3 billion as a three year direct loan provided by the state-run development bank KfW

Lufthansa's board rejects €9 billion Government bailout

What conditions had the European Commission proposed?

The deal was rejected because the Supervisory Board believed that the European Commission wanted too high a price. Lufthansa had been asked to surrender 72 slot pairs (36 daily return flights) at both Frankfurt and Munich airports which the Supervisory Board felt was too much.

Lufthansa flies 300 aircraft out of Frankfurt and Munich. The European Commission’s proposal would have meant that it would need to cut 12 aircraft. It would still have enough slots to operate 288 planes.

To me, this seems like a pretty good deal for being given €9 billion, of which €6 billion is not repayable.

Apparently not. Scare stories were put out by every branch of the airline suggesting that budget airlines might be able to gain a stronger foothold in Frankfurt and Munich and that this was clearly unacceptable …..

Lufthansa's board rejects €9 billion Government bailout

Despite Lufthansa having no cards to play – given that it is on the edge of insolvency – the European Commission gave in yesterday.

What is the new European Commission proposal for Lufthansa?

Lufthansa will now only need to give up 24 take-off and landing slots at both Frankfurt and Munich. This is 2/3rd fewer divestments than originally proposed.

This means that Lufthansa is giving up a grand total of 12 flights per day at each airport. Imagine how much damage it would do to British Airways if it had to give up 12 short-haul flights per day at Heathrow ……. virtually none at all.

However, giving up 12 slot pairs per day was STILL too much for Lufthansa to concede in return for €6 billion of free money and €3 billion of soft loans.

The European Commission therefore added additional clauses to soften the blow.

Only four aircraft will be allowed to operate the 12 slots

This means that the slots cannot be used for long-haul services, or even mid-range short-haul services, since this would require more aircraft. Each aircraft will need to complete three return flights per day, which realistically restricts the choice of routes to a 2-hour range from Frankfurt or Munich.

For 18 months, the slots will only be offered to airlines who do not already fly from Frankfurt or Munich

This is a cunning one. It means that Ryanair and easyJet are conveniently excluded.

If any airline does come forward, they will not have anywhere near enough capacity to build a market position to challenge Lufthansa. At best, 12 flights per day would allow a competitor to fly 3-4 daily rotations on 3-4 European routes. If the frequency was any lower, it wouldn’t attract any business passengers.

It is possible, in 18 months, that no-one has come forward and that existing carriers at Frankfurt and Munich can take the slots. However, carriers which have received Government money during coronavirus will not be allowed to request them. This leaves a small list of airlines, and if the definition of ‘substantial state recapitalization’ includes taking soft loans then easyJet and Wizz Air are excluded.

(I forgot to mention that the slots aren’t free, either. There will be an auction process with Lufthansa receiving the proceeds.)

However you look at it, it is hard to see these ‘concessions’ as anything but a joke. I can only hope that Michael O’Leary did not choke when he read about it. I’m not sure if Ryanair does still have the ability to challenge the deal or not.

You can find out more on the Lufthansa website here.

Category

Lufthansa and Miles & More

This article is closed to new posts. Discussion continues in the HfP Forums.

Don says:

31 May31 May 09:01

Sunderland as well…
Can’t be easy to read the Brexiters are right again…it’s like the old yins really know what they’re talking about.
- Anna says:
  
  31 May31 May 10:24
  
  The irony of Remain voters confessing there are things they didn’t know about the EU!
lcylocal says:

31 May31 May 09:01

Can’t help thinking that IAG in particular and possibly EasyJet too need to get on and strike a deal with the UK government as it is going to be very hard to compete with LH on these terms over the next couple of years.
Lady London says:

31 May31 May 09:46

So the EU lay down like a nice pussycat and asked Germany and Lufthansa to rub its back.

Some of the restrictions look hard to justify.
Not sure why LH gets the slot money. It should go to the government instead.
Pat says:

31 May31 May 11:24

Given the Lufthansa group is the biggest in the EU, the EU had to give in as they did not want companies from outside EU to buyout Lufthansa, if they went bankrupt.
- Don says:
  
  31 May31 May 11:27
  
  That’s already verboten.
Don says:

31 May31 May 11:27

I get tired of the rose tinted view that people have of Germany in the U.K. Its fuelled by a general ignorance among the commentariat as well as clever household marketing of its brands like society is so fair, people are so highly paid. In Germany I remember hairdressers were typically on 400 EUR a month. Like many countries seemingly so rich it’s fuelled by an entire underclass of poorly paid. Immigrants in Germany are exploited and have far fewer rights than in the U.K. Look at the dual nationality issue that affects millions of Gastarbeiter. I’ve never heard migrant labour in Blighty referred to as temporary workers who need to go back home.

This is also how the EU has got away with stuff for years that wouldn’t last 5 mins in the U.K. domestic sphere.
- J says:
  
  31 May31 May 11:52
  
  Lots of little Englanders don’t like Germany?Unfortunately Germany are better at a lot of things, not just football. Germany welcomed over a million refugees – some say that was a misguided policy but it was a very generous gesture and does not reflect the sentiment you are portraying. Germany makes it pretty easy for immigrants from outside of the EU – in comparison to the UK with its hostile policies and unfair income requirements. I don’t know how much a hairdresser makes but €400/month would be well below the minimum wage. There is a lot better support here though for unemployed and low paid workers, with decent benefits and subsidised housing. Contrary to what you read in the Daily Mail, new immigrants to the UK do not receive easy council houses and generous benefits – the UK system is not generous, most people are not flocking there for the benefits (or the weather). I can believe some would come here for the benefits though as it’s a generous system.
  - Don says:
    
    31 May31 May 12:00
    
    Poland welcomed over a million refugees but it doesn’t get a mention as they are the wrong race and the wrong religion yet for the most part are fully integrated. Are you even aware of this?
    - J says:
      
      31 May31 May 12:13
      
      There were 10+ million German refugees (Heimatvertriebene) from Poland and the USSR after WW2. How fortunate we are to live in a time of peace.
      - Don says:
        
        31 May31 May 13:16
        
        I’m surprised that you would invoke the War when defending Germany and the EU. Those refugees you mention only existed because of Germany…
        
        But it does explain why the Germans are so desperate to be seen as humanitarians given their past. The real humanitarian nation of Europe is the U.K. The U.K. leads and others follow. That’s why so many nations are upset they’re on their own against Mutti with the U.K. leaving.
      - J says:
        
        31 May31 May 13:23
        
        The UK leads and others follow? Brexit and its handling of coronavirus look like a disaster to any outsider.
    - RussellH says:
      
      31 May31 May 15:23
      
      At 31 May 2020 at 13:16 Don said:
      > Those refugees you mention only existed because of Germany…
      
      You mean because they were ethnic Germans? Or what? And the figures I have seen for the numbers forcibly expelled from Eastern Europe is much closer to 12×10^6
      
      > But it does explain why the Germans are so desperate to be seen as
      > humanitarians given their past.
      
      Quite. Surely you are not saying that this is wrong?
      
      > The real humanitarian nation of Europe is the U.K.
      
      Yes, we do give more than many countries in overseas aid, and all credit for us doing so. But there are many “respectable” newspapers that have been campaigning against this for years. And do not forget that the UK is the country where British children have parents who have “No recourse to Public funds” ie, they are banned from receiving any benefits, even if their children are starving. And we have a prime minister who voted for this, but still does not understand why these children are starving (see his appearance before the Liason Committee).
- RussellH says:
  
  31 May31 May 15:05
  
  When were you in Germany seeing hairdressers paid €400/mth?
  I have just done a quick search on a German jobs website which says that the typical monthly salary for a hairdresser (in Dortmind) ranges from €1534 to €2361. I also tried a small town in Franconia; this gave a range of €1557 to €2282
Anon says:

31 May31 May 11:32

Haven’t Lufthansa straight up admitted they will ignore EC261 and refuse to give refunds for cancelled flights? voucher or nothing? (We’ll voucher or MCOL…)
BJ says:

31 May31 May 12:00

Who’d have guessed that the commenrs on this article would have degenerated into all this garbage? I’d rather hear about 1966 again, and coming from across the border, that’s saying something!
- Don says:
  
  31 May31 May 12:05
  
  This a political decision by LH, Germany and the Commission. It’s all politics. Politics is about varied views. To use the words of the immensely popular and profitable Guardian- comment is free.
  
  I’m not interested in IHG so I don’t read the IHG articles and comments.
  - BJ says:
    
    31 May31 May 12:27
    
    The comments are often thinly discussed or undisguised rehashing of the same old stuff dating back four years. We left, time to move on from a debate that was split down the middle.
    - Callum says:
      
      1 Jun1 June 01:34
      
      No. It’s time for you to mind your own business and stop dictating what people are permitted to talk about.
  - RussellH says:
    
    31 May31 May 15:32
    
    The full statement is “Comment is free, but facts are sacred”, which to me puts a very different spin on comments, wherever they are to be found.
    
    Quoting just half a statement which may appear to be to support what you are saying is, sadly, far too prevalent amongst polititians of limited ability, no matter what their beliefs.
    - Don says:
      
      31 May31 May 21:41
      
      I can’t afford the subs- so I would never know what the Grauniad are preaching… I’m sure the BBC will be happy to lead with any of their stories though.
      - Rob says:
        
        1 Jun1 June 10:11
        
        Guardian is free ….
Don says:

31 May31 May 14:29

What do you recommend J? Should the U.K. invade Poland on Sep 1? Then after a few years U.K. can be an economic powerhouse when US waives debt and a saviour of refugees?

Germany is the model to follow right?
- J says:
  
  31 May31 May 14:49
  
  I’d say go easy on the day time drinking 😉
  - Don says:
    
    31 May31 May 21:40
    
    I’m a teetotal Muslim.
- Lady London says:
  
  31 May31 May 19:14
  
  My part of London would say the invasion happened already the other way round several years ago. Might as well do an Anschluss on Rumania while we’re at it.
  
  These days there’s a case for a move in the other direction now.