Merkel says Lufthansa deal close as airline warns on urgency

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(May 21): Chancellor Angela Merkel said Germany’s talks to bail out Deutsche Lufthansa AG are nearing completion, providing hope for positive resolution just as the embattled airline’s management warned that a multibillion-euro rescue was becoming urgent.

“A decision can be expected shortly,” Merkel said late Wednesday in Berlin, adding that “intensive talks” were ongoing with the company and the European Commission, which would need to approve a deal. She declined to go into details, saying: “I would give the advice: wait for the talks to end.”

In a letter to employees, the airline warned cash reserves continued to shrink while it negotiates the 9 billion-euro ($9.9 billion) rescue package. Lufthansa’s board said it hoped the government would find the “political will” for a deal that would keep the carrier competitive against international airlines.

Spiegel magazine reported that Merkel, Finance Minister Olaf Scholz and Economy Minister Peter Altmaier had reached a decision over the Lufthansa package, ending weeks of internal wrangling over the government’s position.

Lufthansa gained 4.3% to 8.28 euros in late trading after regular Frankfurt hours. The stock has lost half its value this year.

The German government and Lufthansa have been locked in intense negotiations for weeks over the rescue plan. While the Economy Ministry internally agreed on taking a stake of 25% plus one share, the company had opposed the move, people familiar with the matter said earlier.

Under German law, a 25% plus one share stake would enable the government to block motions at the company’s annual general meetings, giving it a veto over major decisions.
Government Stake

To break the impasse, one scenario that’s been under discussion would see the airline sell 9.3% of new shares to the government at a steep discount. An additional convertible bond could then give the government a blocking minority, if required. Such a move would also give the state upside potential from a rebound in Lufthansa shares.

German newspaper Handelsblatt on Wednesday reported the government agreed on a direct holding of 20% and a convertible bond equivalent to 5% of the company’s stock, plus one share.

Lufthansa executives have raised concerns that the terms on offer would hamstring it against international competitors who’ve received less stringent bailout conditions, a point the management board repeated in the letter. The carrier declined to comment.

Lufthansa is meanwhile running out of time and money, burning through 800 million euros each month after the coronavirus grounded most of its fleet. Chief Executive Officer Carsten Spohr said on May 5 that the company had about 4 billion euros in cash remaining.
300 Planes

The letter to employees gave further details of Lufthansa’s expected fleet reductions for the coming years. The board said it expected 300 of its aircraft would remain grounded in 2021 as demand for flying recovers only slowly, with 200 remaining out of service into 2022.

Lufthansa had previously said it expected its pre-crisis fleet of around 760 aircraft to be around 100 smaller once normality returns around 2023, a forecast it stuck to in the letter.

Spohr earlier this month said the airline is in “intense” talks with Airbus SE and Boeing Co. about postponing plane deliveries as he set out plans for surviving the coronavirus storm.

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