Lufthansa, AF/KLM rescued, some partners maybe not

 

Two of Europe's largest airline groups have been assured of more government support, expected to be enough to keep them going. For Air France/KLM, which previously worked out €7 billion worth of support from France, the good news is a package of €1 billion in loans and €2.4 billion in guarantees for commercial loans.

For Lufthansa, the European Commission has signed off on a bailout package that will keep the company afloat through the current crisis, but will require it to shed some of its prime airport gate spots at Frankfurt and Munich, allowing more competiton there. The deal allows the German government to put €6 billion into the airline.

That's on top of a previous €3 billion loan guarantee. The deal is the result of complicated multi-lateral negotiations, not only with the EU's competition regulators but also with its largest non-government shareholder, Heinz Thiele, who owns 15.5% and originally opposed the deal because it could delete the value of his holdings. In the end, he agreed solely to avoid bankruptcy for the airline.

Lufthansa subsidiaries Swiss, Edelweiss and Austrian Airlines have already received financial aid from their governments, either as grants or loans. The status of another subsidiary, Brussels Airlines, remains unclear in negotiations among the company, Belgian government and unions. Lufthansa has already folded one of its discount companies, Germanwings, into Eurowings, and pulled out of SunExpress, which had been a joint venture with Turkish airlines.

In addition to giving up slots at the two airports, conditions in the deal bar Lufthansa from buying any more airlines or pay any dividends to shareholders until the state aid is repaid.

KLM's rescue package was expected; as the major operator in and out of Amsterdam Schiphol, an airport that accounts for an outsize portion of the Dutch economy and employment, the airline was considered "too big to fail" and too important. But the deal does not come without conditions; the airline will have to cut costs 15%, forego bonuses and raises until the loans are paid, and agree to a 50% CO2 reduction by 2030 compared with 2005 levels.

The best part of every trip is realizing that it has upset your expectations

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