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Lufthansa Fails to Approve €9 Billion Government Bailout Over Disagreement with European Union

Lufthansa Fails to Approve €9 Billion Government Bailout Over Disagreement with European Union

The Supervisory Board of German flag carrier Lufthansa says it is unable to approve a multi-billion Euro taxpayer-funded bailout because of concerns that EU rules might “weaken” its dominance at its hubs in Frankfurt and Munich. On Tuesday, the German government and Lufthansa announced that the two sides had apparently reached a deal on a €9 billion bailout to help see the airline group through the Corona crisis but final approval has to be signed off by the executive Supervisory Board.

At a meeting of senior executives on Wednesday, the Supervisory Board came to the conclusion that it couldn’t approve the deal even though the airline continues to believe that State support is absolutely necessary to help the airline survive the COVID-19 pandemic. Lufthansa did not say what steps it would take to clear the current deadlock.

Photo Credit: Ryanair

“The Supervisory Board has taken note of the conditions currently indicated by the EU Commission. They would lead to a weakening of the hub function at Lufthansa’s home airports in Frankfurt and Munich,” a statement from the airline explained.

“The resulting economic impact on the company and on the planned repayment of the stabilization measures, as well as possible alternative scenarios, must be analyzed intensively.”

While Lufthansa declined to specify what conditions were being placed on the deal by the European Commission, analysts believe officials want Lufthansa to give up valuable takeoff slots at its two hubs in Germany. Without conceding slots, the EU believes the bailout package would stifle competition.

Lufthansa’s chief executive, Carsten Spohr recently told shareholders that without government backing the airline would face an uneven playing field from Chinese, U.S. and Middle Eastern airlines who have all received State aid during the pandemic. But critics, like Ryanair chief executive Michael O’Leary, claim the German bailout will itself “massively distort” the market for European rivals who aren’t getting bailouts of their own.

“How can airlines like Ryanair, EasyJet and Laudamotion (a subsidiary of Ryanair) be expected to compete with Lufthansa in the short-haul market to and from Germany, now that it has €9bn worth of German Govt subsidies to allow it to engage in below cost selling or buy up even more competition for the next number of years,” O’Leary asked.

“Lufthansa is addicted to State Aid,” he continued. “Whenever there is a crisis, Lufthansa’s first reflex is to put its hand in the German Government’s pocket. While most other EU airlines can survive on just payroll support schemes (for which we are extremely grateful), Lufthansa claims it needs another €9bn from the German Government”.

Although Lufthansa was first privatised in 1997, the proposed bailout package will see Berlin take a 20 per cent stake in the airline, as well as two seats on the Supervisory Board.

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