Jun 22, 2020

Germany dares Lufthansa's billionaire top shareholder to scuttle bailout

The Deutsche Lufthansa AG logo sits on a departure hall cordon as the airline and airport operator Fraport AG showcase new coronavirus safety measures at Frankfurt Airport in Frankfurt, Germany, on Wednesday, June 17, 2020. Deutsche Lufthansa said a low turnout at its extraordinary general meeting next week is placing its 9 billion-euro ($10 billion) German bailout at risk of falling apart. Photographer: Alex Kraus/Bloomberg

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Germany stood by its 9 billion-euro ($10 billion) bailout plan for Deutsche Lufthansa AG, daring the airline’s disgruntled top shareholder to shoot it down at a pivotal vote this week.

With Lufthansa fighting for survival after the coronavirus outbreak punctured a decades-long global travel boom, billionaire Heinz-Hermann Thiele is threatening to block the rescue plan -- which would dilute his 15.5 per cent holding and influence -- at a shareholder meeting scheduled for Thursday.

But with the government signaling it’s unwilling to alter the package, the onus is on the 79-year-old investor to decide whether to support a deal he considers faulty or potentially trigger its rejection. The alternative would lead Lufthansa into uncharted waters, forced to reconfigure its survival plan with cash reserves running low and the threat of insolvency looming.

The government stands firm on the agreed package, which will be the basis for the shareholder vote, German economy ministry spokesman Korbinian Wagner said Monday.

The German government explained the terms of the rescue to Thiele in a meeting attended by Lufthansa Chief Executive Officer Carsten Spohr and the two ministers who brokered the bailout, according to a state official. The parties didn’t discuss what would happen if the package wasn’t approved by shareholders, the official said.

“Now the shareholder meeting must decide,” Wagner said at the government’s daily press conference in Berlin Monday.

Lufthansa shares traded 3 per cent lower at 3:07 p.m. in Frankfurt, after tumbling as much as 9 per cent. Its bonds sank to three-month low.

“We face a fateful week for our Lufthansa,” Spohr said Sunday in a letter to employees seen by Bloomberg, warning that it’s not at all certain the bailout package will gain approval at the extraordinary general meeting.

The carrier’s chances of securing backing for the proposal suffered a blow after only 38 per cent of shareholders registered to vote by a deadline over the weekend.

That means Lufthansa’s management must secure two-thirds of votes to win the day, rather than a simple majority. That also means Thiele effectively has a blocking minority, assuming he registered. The airline declined to confirm.

Germany’s third-richest man has expressed dissatisfaction with the rescue, saying the state is profiteering, and was expected to press Finance Minister Olaf Scholz for last-minute changes, according to the people, who asked not to be named discussing a private meeting.

State Stake

Terms of the package of loans and equity investment call for Lufthansa to issue a 20 per cent stake to the government in Berlin at the nominal price of 2.56 euros per share, a change that needs to be approved at the online EGM.

“The federal government should confine itself to the financial aid packages, which are fundamentally very positive, and should not grow into the role of a return-oriented investor,” Thiele told the Frankfurter Allgemeine Zeitung newspaper last week.

It was unlikely that the government would give ground before the vote, as Scholz articulated earlier, having rejected other scenarios as unacceptable or impossible to deliver in time to meet Lufthansa’s cash requirements, one of the people said.

Analysts at Citibank Inc. see three scenarios for Lufthansa this week.

One would see the vote pass with Thiele’s support. The second envisages a failure of the deal, with the government then withdrawing its offer of a 20 per cent stake, a relatively minor part of the deal in terms of the cash it would give to the carrier. The third scenario would see Thiele scupper the deal and then expand his holding as the share price fell.

Lufthansa on Monday fell out of Germany’s bluechip DAX index after its share-price decline this year. The decision to remove the airline was taken by Deutsche Boerse earlier this month.

Monday also marks Lufthansa’s self-imposed deadline for an agreement with unions on as many as 22,000 job cuts, though the sides may agree to a limited cost-reduction package to buy time as talks continue.

The group’s board is separately due to meet with Brussels Airlines, having threatened to put the unit into bankruptcy or up for sale if it fails to secure a bailout from Belgium to match rescues for Swiss and Austrian divisions. It wasn’t clear if the meeting would go ahead given the circumstances.

‘Balanced Offer’

Whether Thiele, a former army tank commander, is prepared to put his 750 million-euro stake at risk isn’t clear. Economy Minister Peter Altmaier has said previously that the airline will be saved at any cost -- perhaps giving the investor hope that Germany would ultimately revisit the basis of the bailout if left with no other choice.

Spohr said in his letter that Lufthansa is preparing for all scenarios, including ways to avoid grounding its jets and continuing communications with the German government should the vote be lost.

“The aim of the board, obviously, is to avoid an insolvency and all the consequences that would bring,” he said.