Germany closes in on Lufthansa’s bailout offer

BERLIN/FRANKFURT: Germany is close to making a formal offer to bail out Lufthansa even as talks to ensure swift approval from the European Union drag on, according to people familiar with the matter.

The committee that manages Germany’s WSF Economic Stabilisation Fund was set to meet later yesterday to discuss a €9 billion ($9.8 billion) aid package, the people said.

The meeting — delayed repeatedly in recent days — is an indication that Germany is prepared to formalise an offer, though the situation remains delicate.

The German government and Lufthansa have reached an agreement in principle on a bailout package, German news agency dpa reported without citing the source of the information.

Chancellor Angela Merkel’s administration had aimed to issue a formal offer to the airline this past weekend, but talks between Germany, Lufthansa and the European Commission have held up the plan, said the people, who asked not to be identified because the talks are confidential.

While Lufthansa fought for weeks to limit government interference, its management board is expected to approve the deal quickly before asking the firm’s supervisory board to vote on it, according to people.

The airline last week warned its need for assistance was “urgent” after the coronavirus crisis grounded most of its fleet.

“A timetable for the German government to sell an eventual stake in Lufthansa is one of the details that still needs to be ironed out,’’ said the people.

The discussions are complicated because competitors have vowed to challenge the aid package for Europe’s largest airline.

The basis of a rescue deal came together last week as Germany seeks to rescue its flag carrier from the fallout of the pandemic.

Under the plan, Germany would become the largest shareholder in the airline, which plans to resize for what

Lufthansa warns could be years of depressed demand.

The company’s shares rose as much as 8.1% to €8.69 and was up 5.1% at 12.46 p.m. in Frankfurt trading. The stock has nearly halved this year, valuing the company at €4.1 billion.

In talks with the EU, the pace of repaying the aid is also an issue.

Lufthansa would face a three-year deadline for paying back the bailout package, Bild am Sonntag reported on Sunday.

That’s a faster rate than one implied by the company. Chief executive officer Carsten Spohr has previously said the company is expected to reimburse as much as €1 billion a year.

The German aid package would include a 20% direct government stake in Lufthansa, a convertible bond equivalent to a 5% plus one share and a €3 billion loan from state development bank KfW.

There’s also plans for a so-called silent participation — a debt-equity hybrid instrument that wouldn’t dilute shareholder voting rights. The securities have relatively high guaranteed dividends, while lacking voting rights and the potential upside from share gains.

In the Lufthansa deal, the German state’s direct holding is for stock with a nominal price of €2.56, a level that all but guarantees a taxpayer profit if the state props up the airline.

“The parties are also discussing a capital-cut option that would see the company issue shares below that price,’’ Lufthansa said in a statement last week.

Under EU state-aid guidelines loosened this month to help alleviate the economic damage of the coronavirus crisis, member states should scale down stakes they buy in listed companies within six years.

The EU’s competition unit also banned payouts like dividends and bonuses for top executives, while barring companies from taking more than a 10% stake in rivals, suppliers or customers.

German Economy Minister Peter Altmaier said in an interview on Saturday that an exit strategy must be part of the plan.