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In a parallel universe, Lufthansa’s shareholders may vote down a €9 billion bailout ….

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Alex Cruz and Shai Weiss, the CEOs of British Airways and Virgin Atlantic respectively, must wake up in the morning and wonder what they did wrong to end up running a British airline rather than a (continental) European one.

Whilst British Airways issues redundancy notices to its staff (legacy cabin crew, pilots and engineers are receiving details of their very modest voluntary redundancy packages this week), the fight continues in Germany over whether the deal to give €6 billion of free money to Lufthansa is too tough. There is now a risk that shareholders reject the offer next week.

The Lufthansa saga is already ludicrous if you look at it from a UK business perspective.

The German Government offered Lufthansa €9 billion as we covered here.  €3 billion of this was a loan, but the remaining €6 billion did not have to be repaid if the airline chose not to, albeit the investment incurs interest.  The Government also promised that it would block any attempts to acquire the airline.

In return, the Government wanted a 20% shareholding in the airline and the appointment of two directors to the Supervisory Board.  The Government agreed not to vote its shares and the directors agreed not to vote at meetings except in certain exceptional circumstances.

In return, the airline was asked by the European Commission to give up enough slots at Frankfurt and Munich to allow other airlines to run 36 daily return flights.  To put this in perspective, this represented 4% of Lufthansa’s capacity in return for a huge life saving cash injection.

Whilst most airlines would have jumped at this, Lufthansa is smarter.  It knew that the European Commission has no real understanding about how airlines work, so pushed back.

The Commission then agreed a bailout which, as our article here explains, is so weak it is useless.

In exchange for its €9 billion (€6 billion of which does not need to be repaid), Lufthansa only needs to give up 12 return flight slots per day at Frankfurt and Munich.

The real genius, though, is that the conditions attached to receiving those slots mean that no airline is likely to want or be allowed to have them.  For a start, any airline currently operating at Frankfurt or Munich is excluded for the first 18 months.  After 18 months other airlines can apply – but any airline which has received ‘Government support’ during coronavirus is excluded.  Secondly, the slots will only be made available for very short flights, which removes the risk of any long haul competition.

So, at the end of May, this is where we were.  Lufthansa had negotiated a hugely generous bailout package and the European Commission had made itself look stupid.  We all thought that was the end of it.

But no …..

The story has now taken another twist.

The largest shareholder in Lufthansa in Heinz-Hermann Thiele.  Thiele is a 79-year old Munich-based billionaire, who is majority owner of the commercial vehicle and rail brake manufacturer Knorr-Bremse.

In an interview with Frankfurter Allgemeine Zeitung newspaper on Wednesday, Thiele stated that he has increased his shareholding in the airline from 10% to ‘more than 15%’ with a view to potentially blocking the deal, although he did not firmly commit to voting against it.

Thiele does not believe that the Government has been generous enough.  His view is that the Government should not receive any shares in the airline in return for pumping in €9 billion.  At best, he wants any shareholding to be held by the state-owned development bank KfW.

Reuters quotes Thiele as saying:

“I appreciate Mr Spohr [Lufthansa CEO] but I’m not satisfied by his statement that everything was examined and that some ideas could not have been implemented. I believe that negotiations could have been more intense,”

Other politicians have also spoken out against the deal.  The opposition Free Democrats party is quoted as saying:

“The German Government has taken a high-risk bet. Its wish for the Government to take a direct stake in Lufthansa is putting the jobs of hundreds of thousands of Lufthansa employees at risk. It’s completely irresponsible.”

For clarity …. we have shareholders and politicians saying that the German Government should just hand over €9 billion to Lufthansa without receiving any shareholding in return.  This is despite the fact that the entire airline is only valued at €4.7 billion today.

The shareholder vote next Thursday is likely to require a 2/3rd majority to pass.  (A straight majority would only be enough if more than 50% of shareholders participated in the meeting, which is seen as unlikely.)  If Thiele votes his 15%+ against the deal, it may fail.  The airline has warned that, if this was the case, it may have to enter bankruptcy protection.

You can read more about this story on the Reuters website here.

UPDATE, FRIDAY AM:  Thiele has just sold €750m of shares in Knorr-Bremse.  It is thought that he might use this money to increase his stake in Lufthansa before the shareholder vote next Thursday.

Comments (29)

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  • Marcw says:

    Adding drama to the panorama. That’s about it.

  • Tom says:

    Lol. In other news, Lufthansa Group continues to pick a fight with Sabre and has terminated its agreement with them during lockdown. Lufthansa be withdrawing at the end of the moment so you won’t be able to book LH Group flights through Expedia, Amex Travel, etc, which is sure to help the group recover even more quickly…

    • Tom says:

      Month, not moment! Weird autocorrect.

    • Alan says:

      I’m still fighting with Expedia for a refund on my cancelled flight to Vienna in late March (now via chargeback) so no great loss from my POV, although agree seems to just be losing them more potential cash flow!

    • Nick says:

      Sabre is only one of the 3 big GDSs, so you’ll still be able to book LH through travel agents. Expedia in particular primarily uses Amadeus, so will be unaffected by this move.

      Sabre is biggest in the US, so agents over there will struggle to book Lufty if it happens. This is not the core market for the airline so it can cope without them for a while, if it means they get a better deal later.

    • memesweeper says:

      My favourite travel acronym SABRE = Semi-automated Business Research Environment

  • Noname says:

    Let’s not forget about British Airways office staff. All areas are being cut by 30% whilst head office is being cut by around 40%!

  • Tony says:

    Assume money not been handed over so the longer the saga goes on the weaker Lufthansa becomes.
    You could not make it up.

  • HAM76 says:

    Lufthansa… They tell us they have resumed normal service in Business when that excludes any alcoholic beverages. That’s after even in normal times only loading three miniatures of Gin, anyway. Only two lounges are open with waiting times that make Heathrow T5 security look like an all-fast track terminal.

    When the dust settles maybe we get back Deutsche BA for domestic flights in Germany if IAG makes it and Lufthansa doesn’t.

    • RWJ says:

      Genuinely curious as to why so many people are obsessed with in-flight alcohol service. Surely the point of Business is a larger seat, more storage, lower crew:pax ratio… rather than being a bar with wings?

      • Don says:

        Larger seat? W00t? I guess you’ve never been NEKked?

        What’s the crew there for then, to serve bottles of water? Or to ensure a speedy evacuation if it crashes?

      • HAM76 says:

        Because that is one of the few things left that differentiate business class. The seat on Lufthansa is the same as in economy. BA at least has a small table in the middle seats for drinks or your phone. LH has nothing like this, it’s just an empty middle seat. Crew is first serving business customers and then just continues to the back. So not dedicated crew members like BA has them, either. You do have more overhead storage if you are early. But board last and that storage has been used as an overflow for bags in economy.

        The other reason is simply that I like to have a drink in the evening when I’m done working. Of course, I could have a drink at home, but that is many hours later when I rather go to bed. The selection of non-alcoholic drinks is also rather uninspiring if you don’t care for sweet beverages or caffeine.

      • JohnG says:

        My wife doesn’t drink so obviously for her alcohol quantity and selection isn’t a consideration, but I don’t see why you’d think you know the motivations of all flyers when selecting business class. Travel short haul in Europe and you don’t get bigger seats in business for most carriers so if that was really critical Club Europe etc would be empty. Extra space is actually important to me, and so I don’t generally bother with business unless it gives more room.

        For me, business when I use it is trying to turn something relatively unpleasurable (travel by air in economy) into something at least reasonably enjoyable; little things like getting to try a reasonably rare Hibiki whisky on a JAL flight can really help to do that.

    • Lady London says:

      I’m thinking Vueling and Air Europa could do well out of this.
      The trouble is, I can see the German government blocking any acquisition of the wreckage of Lufthansa, anyway. Regardless of whether acquiring German airline and airport slots in Germany is, or is not, illegal under EU or international competition law.

      The single 79-year-old shareholder sounds like an experienced investor who’s taking a punt.
      Wonder how much, which outcome is going to cost the German taxpayer in the end ?

  • Mayfair Mike says:

    Thiele sold $1bn of some of his knorr bremse stake last night maybe to give himself more ammunition

  • Steve says:

    “the European Commission had made itself look stupid”. There’s a novelty.

    • J says:

      UK govt on the other hand… How’s their app coming along? If only they’d listened to the experts eh. I wouldn’t trust this govt with my health, let alone an app. Worst stats in Europe, what an achievement.

      • Don says:

        Can’t help yourself?

        If A is stupid, it doesn’t mean that B can’t be stupid too but neither should it be that they cancel each other out.

        • J says:

          Would you rather just deny this embarrassment around the app failure – and deny how badly the UK has performed? Many other countries now welcoming German tourists are (understandably) very hesitant to welcome British tourists, is that something to be celebrated?

          • AJA says:

            J At least the UK government has changed direction. What is the point of continuing with something that doesn’t work?

            Meanwhile how’s Germany coping with the latest Covid outbreak at yet another abattoir?

            The plant near the city of Gütersloh owned by the meat-processing group Tünnies has been closed and 6,000 workers have been put in quarantine. Of the 1,050 tested on Tuesday, two thirds had contracted the virus. The case follows similar outbreaks at abattoirs in Germany and other countries in recent weeks and has fuelled fears that cold environments aid the spread of the virus.

            https://www.thetimes.co.uk/article/coronavirus-slaughterhouse-at-centre-of-huge-new-german-outbreak-nsjv6p5q8

            Unfortunately the rest of the article is behind a paywall.

          • marcw says:

            AJA, there will be many many many outbreaks. It’s important to keep them under control – Germany is showing a majestic way of dealing with the virus… you seem you don’t want to acknowledge.

          • AJA says:

            @ marcw I agree with you. I am not saying Germany isn’t doing well at containing this. I am saying that it still has outbreaks so isn’t as wonderful as J seems to be implying. J seems to think that the UK is terrible and Germany is so much better. I’m just pointing out that Germany isn’t as squeeky clean as he is implying.

          • J says:

            I didn’t comment on Germany being “squeaky clean” – I just said that lots of countries now welcoming visitors from Germany are wary of visitors from the UK. And even being British (albeit living abroad) I’d be wary of visitors from the UK (or Brazil, USA etc) right now!

          • Lady London says:

            @AJA the abattoirs have seen the same outbreaks other countries notably US and France.

            If cold helps it spread, then it looks like Australia and New Zealand banning people incoming have it right. As it’s their winter now.

            But that doesn’t bode well for Europe next winter when a possible second outbreak could spread rapidly in the cold if it starts. We were very lucky it was Feb-April (spring) before we saw it this time in UK/Europe.

  • Kip says:

    Maybe Elliott and Greybull should declare an interest. That should concentrate a few minds.

    • Doug M says:

      It wouldn’t and that’s LH’s win. They know no matter what the German gov will not let them fail and that no ‘outsider’ will be allowed to have too much say in matters. The German gov constantly hand win after to win to LH so there’s no expectation on their part of anything but more money and absolutely no strings attached to it.

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