LHA Deutsche Lufthansa AG

By Ruth Bender 

BERLIN -- The German government and Deutsche Lufthansa AG said Monday they have agreed on a EUR9 billion euro ($9.81 billion) bailout deal -- one of the biggest aid packages by a single country hatched so far in the pandemic-hit air travel sector.

The deal, widely expected and weeks in the making, comes after the world's largest airlines have grounded a majority of their flights as most borders remain closed to contain the novel coronavirus. Airlines are furloughing or laying off tens of thousands of staff and negotiating bailouts with their governments.

"This is an important step as it's about more than 100,000 jobs, about preserving Germany's leading position in global civil aviation and about making sure that a healthy and tradition-rich company that got into trouble because of the coronavirus pandemic can exist also in the future, " Economy Minister Peter Altmaier said Monday.

Under the deal -- which still needs approval from Lufthansa's boards, shareholders and the European Commission -- the German government will take a 20% stake in the company and appoint two supervisory board seats.

The agreement caps a weekslong tug of war between Lufthansa's management and the government over how much control the latter should be given in return for financial support.

Lufthansa Chief Executive Carsten Spohr had warned against too much state influence on business decisions. Germany's economic-stabilization fund, or WSF, agreed not to exercise its voting rights except in the event of a takeover, which would allow it to raise its stake to a blocking 25% plus one share. Mr. Altmaier said the deal would prevent foreign investors from taking advantage of the crisis.

WSF will build its 20% stake through a capital increase, acquiring new shares for a total of about EUR300 million in cash, Lufthansa said.

The EUR9 billion also includes an equity injection by the government of up to EUR5.7 billion in the form of a silent participation that is unlimited in time and can be repaid by Lufthansa on a quarterly basis in whole or in part, as well as a EUR3 billion loan from state-backed bank KfW, of which EUR600 million will come from private banks.

Mr. Altmaier said the government was still in talks with the European Commission, the European Union's competition watchdog, which could impose conditions on the deal. He declined to comment on details of the talks.

In the U.S., the $2.2 trillion federal stimulus bill known as the Cares Act included $25 billion in grants for passenger airlines to keep paying workers' salaries and benefits through September. The 12 larger passenger carriers are required to repay 30% of the grant money, and provide warrants that could be converted to stock later. In addition, airlines can seek another $25 billion in government loans.

American Airlines Group Inc. is receiving $5.8 billion in grants and loans from the federal government to cover payroll. It has applied for another loan of $4.75 billion and has said it is still negotiating with the Treasury over collateral and terms. United Airlines Holdings Inc. is receiving $5 billion in grants and loans to cover payroll, and has applied for another loan of as much as $4.5 billion.

Delta Air Lines Inc. is set to receive $5.4 billion in payroll support and is eligible for another $4.6 billion in loans. Southwest Airlines Co. is receiving $3.3 billion in funding to cover payroll and has said it would apply for a $2.8 billion loan.

German daily Handelsblatt reported earlier that Germany was resisting a push by the commission to have Lufthansa give up important landing slots at its Frankfurt and Munich hubs. A spokeswoman for the commission declined to comment.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

May 25, 2020 16:23 ET (20:23 GMT)

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