Lufthansa has a future once more, since the threat of insolvency was averted on Thursday. Due to much of its fleet being grounded, yet with costs continuing to run, it has lost and keeps
on losing one million euros every single hour. The rescue will be expensive: it will cost jobs, and, in the end, it will lead to a smaller Lufthansa (LH).
Without the billions in support from the German government, LH would probably have faced the same fate as Avianca or LATAM: both are now broke.
Lufthansa’s virtual Extraordinary General Meeting, held in Frankfurt on Thursday afternoon (25JUN20), lasted five long hours. The sole topic on the agenda, a matter of life or death: Insolvency
or phoenix out of the ashes, was the question demanding a decision. Like most other airlines, LH was hard hit by the Covid-19 pandemic, leading to the grounding of most of its aircraft and
causing enormous revenue losses.
Almost unanimous support
In the end, Supervisory Board Chairman, Karl-Ludwig Kley announced that 98.4% of the shareholders had approved the pre-negotiated rescue package.
The scheme, which had been okayed by the EU Competition Commission some weeks ago, provides for the German government to support Lufthansa with a total of 9 billion euros, while forcing the
carrier to give up slots at its Frankfurt and Munich gateways. Part of the package consists of loans for which Lufthansa will have to bear a progressively rising interest burden in the following
years, and which can be as high as 9% at the top rate. The state secured itself a 20% stake in the airline but denied any intentions to get involved in operational decisions. Berlin’s share could
be increased to 25.1% if hostile takeovers threaten, which would allow the state to block such advance.
For weeks, LH’s rescue was at stake, as Munich shareholder Heinz Hermann Thiele, who holds 15.4% of Lufthansa’s capital, refused to support the package, and announced to boycott the plan.
However, the billionaire pulled back shortly before the General Meeting commenced.
Hurrahing the decision
When the results of the annual general meeting became known late Thursday afternoon, there was spontaneous jubilation among the many employees in Lufthansa uniforms who had gathered in front of
the company’s Frankfurt HQ. Understandably so, because, in case of insolvency, their jobs would have been gone. Now these are secured for the next 4 years, according to an agreement previously
negotiated between cabin crew and LH management, however at conditions that are tough stuff for them. It means fewer working hours and substantial salary cuts. A hefty financial cut for the
majority of the flying personnel among the 138,000 Lufthansa employees, but it pushes down cabin crew costs by 17%. The pilots, who enjoy lavish salaries, announced similar saving contributions,
the details of which are still being negotiated.
Nevertheless, despite these cost cuts, LH is determined to part with about 22,000 employees, which is to be achieved through early retirement and restructuring measures. This will be done in a
“socially responsible manner,” CEO Carsten Spohr assured.
Lufthansa Cargo “benefitted” from corona
The LH subsidiaries, such as Lufthansa Technik and Lufthansa Cargo, are also affected by the job cuts. While there is a calculated personnel surplus of 4,500 jobs at Technik worldwide, 500 jobs
at Cargo are to be cut. The freight arm was one of the few crane subsidiaries to earn money in recent months. This not only with its freighters, but also with so-called “preighters”, i.e.
passenger aircraft converted into freighters. The planes were urgently needed to transport hygiene articles, face masks or protective equipment from China to Europe, in order to contain the
corona epidemic. The high rates that literally shot through the roof in recent weeks proved to be helpful in this respect. Lufthansa Cargo’s next annual report will show how the carrier has
mastered the Covid-19 crisis. The results will be interesting to see.
Following the vote, the Lufthansa share price increased its gains on Thursday evening, rising by 9.1% to 10.47 euros:
The state, your friend and helper. For Lufthansa, this German saying is absolutely true as shown last Thursday. Without state funds, the proud airline would have had to go to court right after
the General Meeting to file for bankruptcy. Its shares would have been worthless, and well over 100,000 staff would have lost their jobs. Above all, however, the absence of the airline would have
torn an immense gap in the supply of reliable continental and intercontinental flight connections linking Germany and Europe with the “rest” of the world. For Germany as an export nation, which
is closely tied with foreign markets, the absence of this network, especially the end of Lufthansa Cargo, would have been a disaster.
The government prevented the downfall. As in France or Italy, the German government opened its vaults and provided Lufthansa with abundant capital. So basically, it is the taxpayers and their
money that rescued LH. What can the 83 million Germans expect in return? High interest rates that LH has to pay in the years to come, up to 9% of the loan granted. This money will fill the state
coffers, benefitting all taxpayers at the end. Provided Lufthansa recovers.
And other airlines? They can only dream of such support from their governments, shown by LATAM and AVIANCA. Their governments in Santiago (LATAM) and Bogota (AVIANCA) refused to support them
financially, letting them know that it is their job to get out of the morass through their own efforts. Like LH, these airlines were also hit by the pandemic at no fault of their own.
At the end of the day, Covid-19 might cause massive shifts in international air traffic. Airlines from wealthy nations will emerge stronger after Covid-19 is over or fades out, while players from
the Southern Hemisphere might be demoted to the role of substitutes.
We always welcome your comments to our articles. However, we can only publish them when the sender name is authentic.