Deutsche Lufthansa AG [OTC: DLAKY] has secured the liquidity it needed to ensure its near-term survival after shareholders overwhelmingly voted in favor of a stabilization package from the German government.
Under terms of the deal finalized Thursday, Lufthansa is eligible for loans up to $10.1 billion and the German government will purchase shares for 20% of the company. The government will also be a passive investor with a contribution of $6.4 billion. The German Economic Stabilization Fund was also given the right to convert a portion of that stake into a further 5% share of the company to safeguard its investment in case of a takeover or to secure the interest payments for the silent capital contribution.
The package will be supplemented by a loan of up to $3.4 billion with the participation of the state-owned development bank and private banks.
The airline suspended nearly all of its operations for more than two months, primarily flying repatriation and cargo flights, as it sought to cut costs at the height of the coronavirus pandemic and the sharp downturn in travel.
“The decision of our shareholders provides Lufthansa with [prospects] for a successful future. On behalf of our 138,000 employees, I would like to thank the German federal government and the governments of our other home countries for their willingness to stabilize us,” Chief Executive Carsten Spohr said in a statement. “We at Lufthansa are aware of our responsibility to pay back the up to 9 billion euros to the taxpayers as quickly as possible.”
In addition to its extensive passenger network, Lufthansa operates freighter aircraft and ranks seventh in the world for the amount of cargo flown, according to International Air Transport Association (IATA).
Lufthansa’s board warned a week ago that a shareholder vote could fall short of the two-thirds majority required to pass the measure, but 98% of shareholders voted to accept the package.
One of the conditions imposed by the European Commission is that Lufthansa relinquish some slots at its Frankfurt and Munich hubs.
Lufthansa is taking advantage of the European Union’s reopening of borders this month between member countries and as it starts to reopen to the rest of the world next week. It plans to gradually increase flights to cover 90% of its original schedule for short-haul destinations and 70% of long-haul destinations by September.
The stabilization package will enable Lufthansa to loan money to its Swiss International Air Lines subsidiary. Austrian Airlines, another Lufthansa company, this week said, it will deploy 36 aicraft and quadruple capacity in July to 20% of last year’s schedule. Long-haul destinations include Bangkok, Chicago, New York and Washington.
Airlines could lose $84 billion this year, with revenues tumbling $419 billion, IATA estimates. The industry continues to seek more government aid, including through tax and fee abatements, and regulatory flexibility.
On Friday, Lufthansa said Thorsten Dirks, the executive in charge of automation and finance will depart. Spohr will temporarily pick up his duties.
Click here for more stories by Eric Kulisch.
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