Lufthansa Warns Bailout In Question, Bankruptcy Possible

Deutsche Lufthansa AG DLAKY warned Wednesday that shareholders may not approve a $9.8 billion financial rescue package that would see the German government take a 20% stake in the company and provide other loans and loan guarantees to help it withstand the downturn in business caused by the coronavirus pandemic.

Lufthansa, major provider of air cargo and passenger transport, said that without the government aid it may need to apply for court-administered bankruptcy protection while it continues to restructure.

Shareholders are scheduled to meet June 25 to decide on the the government's equity position and offer of capital. Lufthansa's board of directors says it expects attendance at the extraordinary session to be below 50%, which would then require a two-thirds majority of votes for the measure to pass. 

In an interview published this week in the Frankfurter Allgemeine Zeitung, Heinz-Hermann Thiele, the company's largest shareholder, was critical of the conditions for securing the deal and said he was undecided on whether to approve it. 

The European Union has demanded that Lufthansa be forced to relinquish valuable takeoff and landing slots at its hubs in Frankfurt and Munich, something the board reluctantly agreed to to keep the company from insolvency.

Thiele said he has recently increased his stake in Deutsche Lufthansa to more than 15%.

According to German law, a two-thirds majority of the votes cast is required for the adoption of the stabilization measures if shareholder attendance is below 50%. The annual general meeting May 5, which was also conducted virtually, only had 33% participation. If more than 50% of shareholders  are present, only a simple majority of the votes cast is required to approve a corporate bailout.

The deadline for registering to attend the annual general meeting is June 20.

Airlines are downsizing and laying off workers in an effort to stabilize losses and plan turnaround efforts. On Monday, Lufthansa said it will need to eliminate 22,000 jobs that have become redundant because the company plans to operate at a smaller size for the foreseeable future. The carrier lost $1.4 billion in the first quarter.

Lufthansa is the seventh largest airline in the world in terms of cargo carried, according to the International Air Transport Association. A large fleet of freighter aircraft supplement capacity in the lower decks of passenger planes.

The lifting of the European Union's regional travel ban on Monday was good news for European airlines and offers the opportunity to increase revenues as they gradually add flights to their schedules. The EU is scheduled to lift its ban on travel from outside the region on July 1, but it remains unclear how quickly large numbers of customers will return to air travel.

In a further effort to ease customer concerns, Lufthansa and sister airlines Swiss International Air Lines and Austrian Airlines have begun offering return-flight guarantees on all European routes in addition to flexible rebooking options. The company promises to return all customers to Germany, Austria or Switzerland regardless of fare booked, using special repatriation flights if necessary, in the event a spike in COVID-19 cases causes nations to implement travel bans again.

The company also announced insurance coverage for passengers in case they are not allowed to enter the country of destination due to high temperature or if a quarantine at the destination becomes necessary after a positive coronavirus test. The insurance will cover the costs of the quarantine, including hotel, or medical return transport. And Economy and Business Flex fares on European routes also come with a guarantee to be flown home as quickly as possible by rebooking on an earlier flight free of charge.

(Click here for more stories by Eric Kulisch.)

Photo: Lufthansa Cargo