Why are governments giving rescue packages

Rescue package for LufthansaHow much state does it have to be?

The corona crisis almost brought Lufthansa's business to a standstill, with the exception of freight. Only slowly does she increase her offer again. The company makes millions in losses every day. For weeks there had been speculation about a state rescue, now it is clear: The federal government will take Lufthansa under the wings with a financial package totaling nine billion euros.

In return, the company will have to forego future dividend payments, and there should be a limit on management compensation. In addition, the group is committed to renewing its fleet with aircraft that use less fuel. The EU Commission, the Lufthansa Supervisory Board and the Annual General Meeting still have to approve the agreement between the government and the company.

After the rescue by the German state, tough negotiations have begun at Lufthansa to cut staff numbers. The Verdi union is demanding better protection against job losses for the approximately 35,000 employees it represents and warns against the group being broken up. Verdi is one of three unions to negotiate about employee savings contributions to cope with the corona slump. She mainly represents the ground and technical staff.

Lufthansa shareholders vote on the rescue package

Shortly before the general meeting, the major shareholder Heinz Hermann Thiele signaled that he would not block the restructuring package negotiated with the federal government, despite initial concerns.

Lufthansa shareholders voted on Thursday (June 25) with a clear majority (98.04 percent) for a capital increase, with which the federal government will invest 20 percent in the airline, as supervisory board chairman Karl-Ludwig Kley said. At an extraordinary general meeting, they created the basis for a government rescue package worth nine billion euros. Of this, 5.7 billion euros are to be brought in as silent participations.

Austrian Airlines, which belongs to the Lufthansa Group, has also received a rescue package totaling 600 million euros. Of this, 450 million come from Austria and 150 million from the parent company Lufthansa. The aid made available by the state is said to be a EUR 300 million state-guaranteed bank loan and a EUR 150 million direct grant. The aid is tied to conditions: On the one hand, climate targets are to be achieved and flight tickets are to cost a minimum of 40 euros.

(AP) concern that the rescue package will fail
The largest single shareholder of Lufthansa has increased its stake in parallel to its demand for renegotiations in the Lufthansa rescue package. There is great concern that the billionaire Heinz-Hermann Thiele could burst the package at the upcoming annual general meeting.

How much government participation is appropriate?

Specifically, the government's economic stabilization fund is to acquire 20 percent of Lufthansa shares worth EUR 300 million, plus two silent partnerships worth EUR 5.7 billion. The KfW development bank is contributing three billion euros. In addition, the federal government will be represented by two mandates on the supervisory board, whereby the mandates are to be awarded to independent experts.

The federal government does not yet have a blocking minority with which important decisions could be blocked. The required share of 25 percent plus one additional share should only be purchased as an option in an emergency, for example if a hostile takeover threatens. This is secured by a so-called convertible bond covering the missing five percent plus share.

The negotiated package triggered different reactions. Thomas Lutze (Die Linke) welcomes the aid package, but calls for further state participation.

(dpa / picture alliance / Boris Roessler) Pfeiffer (CDU): "It's about building a bridge"
The planned financial support of Lufthansa is important, said Joachim Pfeiffer, economic policy spokesman for the CDU / CSU parliamentary group, in the Dlf. However, he does not consider permanent nationalization to be sensible.

It is true that the German state is helping Lufthansa with nine billion euros, said left-wing politician Thomas Lutze in the Dlf. Federal Minister of Economics Peter Altmaier made a crucial mistake, said Lutze. As a shareholder in the Lufthansa company, the Federal Republic of Germany must automatically have a blocking minority - not only in an emergency, as the current regulation provides. This is also done in the free economy. Michael Theurer (FDP), on the other hand, sees the agreement as a risk of partial nationalization or nationalization of the group, which could lead to a distortion of competition.

Tens of thousands of jobs would have to be secured

The left-wing faction is particularly concerned about the employees, stressed Lutze. 35,000 people are directly employed by Lufthansa, again as many in the group surrounding the company. A condition must therefore be included in the rescue package that the federal government as a shareholder has the opportunity - in cooperation with the trade unions, the works councils and employees - to secure jobs.

The second point of criticism concerns the refund of tickets that were not redeemed due to the corona crisis. Some customers have been waiting for their money since March, criticizes Lutze. Lufthansa has sufficient funds available for a refund even without the rescue package.

There is no risk of interference in day-to-day business

In both cases - in securing jobs and in the reimbursement of tickets - the federal shareholders must also have the opportunity to exercise their influence, said Lutze.

Lutze does not see the risk of interference in the operational business with the agreement between the government and Lufthansa. For the operative business "you ultimately need managers and also staff councils who do proper work there to keep the company running". The group must remain under private law, only in this way can it survive in international competition with mostly private law competitors.

Theurer (FDP): "The state is not the better entrepreneur"

The FPD politician Michael Theurer, on the other hand, warned of a "nationalization series", which the agreement between Lufthansa and the federal government could initiate. "The economic stabilization fund must not become a Treuhand 2.0, because that has negative effects on competition," said Theurer in the Dlf.

A direct stake of 20 percent and a further five percent via a convertible bond - that is no longer financial aid, so that the state becomes a "strategic investor," warned Theurer. Theurer does not accept the argument that hostile takeovers must be prevented: "In response to a request from the FDP parliamentary group, the federal government itself declared that there are no hostile takeovers at all at the moment."

Overview on the subject of coronavirus (imago / Rob Engelaar / Hollandse Hoogte)

Climate protection goals not only for Lufthansa

The FDP demands "a fixed and binding time to exit" for the Federal Republic of the company. It also rejects calls for climate protection goals or location interests to be taken into account. This requires a regulatory framework for everyone, not "individual government interventions in business decisions," emphasized Theurer. "We want a strict CO2 cap over a functioning emissions trading system in Europe."

EU approves rescue package - but not without conditions

The EU Commission's competition watchdogs have approved the Lufthansa rescue package. However, the EU Commission has tied its approval to conditions. The release of the recapitalization aid in the amount of six billion euros is subject to the condition that the largest German airline complies with obligations to avoid distortions of competition. These include that Lufthansa must surrender take-off and landing rights at the main locations in Frankfurt am Main and Munich. This should enable the competition to set up a base with up to four aircraft at the locations.