Germany duels with EU over Us$9.9bil bailout for Lufthansa

FRANKFURT: The German government has bristled at the European Commission’s antitrust

€9bil demands on its (Us$9.9bil) bailout of Deutsche Lufthansa AG, in a sign of rising tensions over the stalled aid package.

The insistence by officials in Brussels that Lufthansa ditch some of its takeoff-and-landing slots in Frankfurt and Munich is unfair, German Transport Minister Andreas Scheuer told Germany’s Bild newspaper on late Wednesday.

“The European Commission doesn’t do this with other airlines,” Scheuer said in comments to the newspaper, citing Italy’s plan to nationalize Alitalia SPA as an example.

Concerns that European Union requirements would hit Lufthansa’s business led the airline’s supervisory board to unexpectedly hold off on accepting the German lifeline on Wednesday, throwing the rescue plan into turmoil after weeks of talks.

The labour-heavy board sees a threat that jobs would be lost and the market would shift toward discount airlines that pay less.

The stalemate has taken Lufthansa’s crisis to a new level of urgency, with Germany’s government trying to square clear-cut EU rules with governance dynamics at the airline. In the balance is the arrival of much-needed funds. Chief executive officer Carsten Spohr warned employees Wednesday that the airline would struggle to pay wages in June if it can’t get hold of the bailout cash, according to a person familiar with the matter.

The German aid package unveiled on Monday involves the state taking an initial 20% stake in Lufthansa that could rise to a blocking minority of 25% plus one share in the event of a hostile takeover. The support also includes a 5.7 billion-euro investment via a so-called silent participation, and a threeyear loan of three billion euros.

The prospect of Germany becoming Lufthansa’s biggest investor has raised concerns in Brussels that the airline, backed by such a powerful shareholder, would increase its dominance over the aviation market.

The EU defended tougher conditions for the recapitalization than for a loan. The capital infusion “it does not increase the debt exposure of the company and ensures that the company is supported by a strong shareholder,” the EU said on Wednesday.

German government officials concede in private that Lufthansa will need to give up a sizable amount of capacity in Germany to secure the European Commission’s blessing. Lufthansa could also be asked to cut back 20 planes in Germany, a person familiar with the matter said Wednesday.

Lufthansa, along with its subsidiaries, dominates slot allocation at the two Frankfurt and Munich hubs. Germany’s DLR aerospace center has estimated the group has a twothirds share of the nation’s commercial aviation market. The airline opted against immediately calling a shareholder vote and said the proposal will be reviewed, citing a need to analyze the economic hit, the repayment of the aid and possible alternative scenarios.

Lufthansa’s employee representatives, holders of half the votes on the supervisory board, are also fiercely opposed to the European Union demands on slot disposals.

“The 140,000 jobs at Lufthansa cannot be endangered through nonsensical and competition-distorting demands,” Markus Wahl, president of the VCI pilots’ union, said in an emailed statement. Still, the bailout remains “as the only viable alternative for maintaining solvency,” according to the board.