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Lufthansa secures $9.8 billion state aid for “successful future”

With more storyline twists and turns than a cheaply produced TV series, the drama-filled $9.8 billion (€9 billion) state aid package can finally be transferred to Lufthansa’s pockets, as the company’s shareholders approved the stabilization measures on June 25, 2020.

Lufthansa Group is set to receive the biggest bailout amongst its competitors in Europe, as the group will exchange $9.8 billion (€9 billion) of stabilization measures, including silent capital contributions and state-guaranteed loans, in exchange for a 20% stake at the company. 

Furthermore, the European Commission ruled that the Frankfurt-based airline group will have to give up slots in its two main hubs, Frankfurt Airport (FRA) and Munich Airport (MUC), and base fewer aircraft in Germany, if it wants the European authorities’ approval of the state aid package.

Shareholder revolt

Initially, not everyone was happy with the stabilization measures and the strings attached to them. The largest single shareholder within the German airline Heinz-Hermann Thiele publicly denounced the state aid package and the trade-off that Lufthansa had to make in order to get the capital injection. 

Thiele believed that Carsten Spohr, the chairman of the company, was not transparent in disclosing all options available to the airline group. In response, Lufthansa warned that without state aid, it might need to enter protective shield proceedings, a procedure similar to Chapter 11 Bankruptcy in the United States. The bankruptcy could have been the result of a low shareholder turnout at the general meeting and Thiele’s public disapproval.

Trimming fat

Despite the $9.8 billion (€9 billion) of additional liquidity, Lufthansa entered into negotiations with trade unions to lower its costs further. While at the beginning UFO, a German flight attendant union, described that the company has 26,000 jobs too many, the final number landed at 22,000. The airline’s own pilots offered concessions to the carrier, cutting their salaries by up to 45%, saving the airline up to $400 million (€350 million).

On June 24, 2020, the aforementioned UFO union joined the group’s pilots and offered concessions worth up to $561 million (€500 million). In exchange for job security during the coronacrisis, the flight attendants’ union will see their flying hours reduced, pay increase suspended, and lower contribution to the company’s pension program.

“The agreement that has now been reached for Lufthansa cabin staff provides the urgently needed job security,” stated UFO chief negotiator Nicoley Baublies, as the concession package placed Lufthansa’s and its union’s “social partnership on a new and visible foundation,” added Baublies.

 

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