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May 31, 2020

Germany, Brussels seal pact on Lufthansa bailout plan


May 31, 2020

Frankfurt: Germany and the European Commission have reached agreement on a giant Berlin-funded rescue plan for coronavirus-hit Lufthansa, a Commission spokeswoman and a source close to the negotiations said on Friday.

Since the pandemic hit Europe, the Lufthansa group -- which also includes Brussels and Austrian Airlines and Swiss -- has been bleeding one million euros per hour, with around 90 percent of its 760-aircraft fleet grounded.

The deal would see the German carrier give up eight planes and their associated landing rights, the spokeswoman and the source said.

Lufthansa said in a statement it had "decided to accept the commitments offered by Germany to the EU Commission" for the rescue package, adding it would surrender up to 24 take-off and landing slots that could be allocated to rival airlines.

German media had previously reported the European Commission would demand the group give up valuable takeoff and landing rights at its Frankfurt and Munich hubs in exchange for Brussels´ green light.

The nine-billion-euro ($10 billion) German state lifeline, would see Berlin take a 20-percent stake in the group, with an option to claim a further five percent plus one share to block hostile takeovers.

That would make the federal government Lufthansa´s biggest shareholder.

On top of a total 5.7 billion euros in extra capital and 300 million to buy the shares at face value, public investment bank KfW would also lend Lufthansa three billion euros.

The company would agree to pay back much of the capital plus interest, while granting the state two seats on its supervisory board.

Hammering out the details of the package took so long because Chancellor Angela Merkel´s conservatives were keen to minimise state control over the company´s day-to-day running.

Lufthansa’s management board has accepted a more favourable set of demands from the European Commission in exchange for approval of a 9 billion euro ($10 billion) government bailout, the carrier said on Saturday, paving the way for its rescue.

Under the latest agreement, Lufthansa said it will be obliged to transfer up to 24 takeoff and landing slots for up to four aircraft to one rival each at the Frankfurt and Munich airports.

This translates into three take-off and three landing rights per aircraft and day, it said.

“For one-and-a-half years, this option is only available to new competitors at the Frankfurt and Munich airports,” Lufthansa said, initially excluding budget carrier Ryanair. “If no new competitor makes use of this option, it will be extended to existing competitors at the respective airports.”

The previous deal had included forfeiting 72 slots used by 12 of 300 jets based at the Frankfurt and Munich airports, a source familiar with the matter said.

The slots, to be allocated in a bidding process, can be taken over only by a European peer that has not received any substantial state aid during the pandemic, Lufthansa said.

The Commision said once it has been officially notified by Germany on the aid package it will assess the issue as a matter of priority.

“(Lufthansa’s remedies will) enable a viable entry or expansion of activities by other airlines at these airports to the benefit of consumers and effective competition,” it said in a statement.

The airline’s supervisory board needs to approve the deal, Lufthansa said, adding it would convene an extraordinary general meeting to obtain shareholder approval for the bailout.