German Government Offers Bailout To Lufthansa Airline

The German government is bailing out the country’s flagship airline.

The federal government in Germany has announced that it is providing Deutsche Lufthansa AG (Lufthansa airline, ETR:LHA) a nine-billion-euro ($9.8-billion U.S.) bailout that will see the government take a 20% stake in the carrier.

As part of the deal, the government will pay about 300 million euros for new Lufthansa stock at a discount price of 2.56 euros, the nominal value of its shares on the balance sheet. Lufthansa shares, which have dropped by nearly 50% this year, closed at 8.50 euros in Frankfurt trading on Monday.

The government’s stake in Lufthansa could rise to 25% over time. The bailout, which requires European Union approval and could be challenged by rival airlines such as Ryanair Holdings Plc, gives German officials an effective veto over company strategy.

While Lufthansa’s management board accepted the offer, the company’s supervisory board will debate and vote on the package before asking shareholders to do the same at a general meeting this summer.

Lufthansa, Europe’s largest airline, last week warned that it required “urgent assistance” after the fallout from the coronavirus grounded most of its aircraft. The nearly $10-billion U.S. bailout package represents the biggest corporate rescue in Germany during the pandemic. It’s also the only one that involves a direct investment by German Chancellor Angela Merkel’s government.

The German government set up a 100-billion-euro fund to buy stakes in troubled companies as part of its effort to stabilize Europe’s largest economy.

Like airlines everywhere, Lufthansa is fighting for survival as restrictions to contain COVID-19 ends a decades-long aviation boom. The airline said it plans to operate fewer aircraft when flights resume and is closing discount arm “Germanwings” to resize for what it warns could be years of depressed air travel demand.