Germany will take stake as part of Lufthansa aid

Germany will offer Deutsche Lufthansa AG a nine-billion euro (US$9.8 billion) bailout that thrusts the state back into the heart of a company privatized with fanfare two decades ago.

The aid package involves taking an initial 20-per-cent stake that could rise to a blocking minority of 25-per-cent-plus-one share in the event of a hostile takeover, the carrier said in a statement on Monday.

The plan, which requires European Union approval and will likely be challenged by rival airlines such as Ryanair Holdings Plc, gives Germany an effective veto over company strategy.

German Finance Minister Olaf Scholz said the state’s investment would be temporary, but he also stressed that the timing of an exit would depend on the pace of Lufthansa’s economic recovery.

“When a state spends that much money, it has the obligation to make sure that this investment does not come at the taxpayers’ expense,” Scholz said.

Like airlines globally, Lufthansa is fighting for survival as restrictions to contain COVID-19 puncture a decades-long aviation boom.

The company plans to operate fewer aircraft when flights resume and is closing discount arm Germanwings to resize for what it warns could be years of depressed demand.

The package represents the biggest corporate rescue in Germany during the pandemic crisis.

As part of the deal, the government will pay about 300 million euros for new Lufthansa stock at the discount price of 2.56 euros, the nominal value of its shares on the balance sheet.

Lufthansa shares, which have nearly halved this year, closed at 8.64 euros in Frankfurt trading.

The deal also includes a 5.7-billion euro investment via a socalled silent participation — a debt-equity hybrid instrument that wouldn’t dilute shareholder voting rights.

The company will pay a guaranteed dividend on the investment of four per cent in 2020 and 2021, rising to 9.5 per cent in 2027.

A portion of the silent participation can be turned into five per cent of Lufthansa’s stock if the company doesn’t pay the guaranteed dividend, according to the statement.

The state will also back a threeyear loan of three billion euros.

The government aims to sell its stake by the end of 2023.