- German government and Lufthansa agree on an £8.06 billion bailout.
- The government to secure two seats on Lufthansa’s supervisory board.
- Germany will inject £5.10 billion in Lufthansa as non-voting capital.
Sources informed on Monday that management of the Europe’s 2nd largest air carrier, Lufthansa (ETR: LHA), and the German government have agreed on an £8.06 billion bailout. The preliminary deal, sources added, is targeted at helping the airline cushion the economic blow from the Coronavirus pandemic that has brought the global air travel to a near halt. Lufthansa said last week that hundreds of its aeroplanes will remain grounded until 2022 due to COVID-19.
Shares of Lufthansa were reported 6.2% up in premarket trading on Monday. At £7.66 per share, Lufthansa is currently a little under 50% down year to date in the stock market.
German government to secure two seats on Lufthansa’s supervisory board
Last week, the air carrier said that the ongoing negotiations are likely to conclude in the German government securing two seats on the company’s supervisory board. Full voting rights, it added, will only be exercisable under exceptional circumstances including saving Lufthansa against a takeover.
The German government and Lufthansa have been negotiating to strike a deal for weeks. While it was evident that the flagship airline required financial support to survive the pandemic as it was burning through £820K per hour, it was evaluating the extent to which it wishes to relinquish control to the government in exchange.
According to Lufthansa, the proposed deal is also expected to demand suspension of dividend payments in the future and a slash on management salaries. As per the sources, the German government is likely to invest roughly £270 million in Lufthansa to get a 20% stake in the company. It will purchase new shares of the company at a price of £2.29. Learn more about return on invested capital.
German government to inject £5.10 billion in Lufthansa as non-voting capital
In silent participation or what is commonly referred to as non-voting capital, the German government will inject £5.10 billion in Lufthansa. At a later stage, a part of the non-voting capital may also be turned into an additional equity stake of 5%.
The silent participation, according to the sources, will boast a 4% coupon this year and in 2021, which will be increased to 9.5% by 2027 aimed at rewarding timely repayments.
Separately, the largest German airline will also receive £2.69 billion in financial support from the state-backed lender, KfW.
The £3.63 billion company currently has a price to earnings ratio of 3.36.