Lufthansa (LH, Frankfurt International) has announced it has reached an agreement with the German Economic Stabilisation Fund (Wirtschaftsstablisierungsfonds - WSF), a government-backed COVID-mitigating fund, and various banks on a bailout package worth EUR9 billion euros (USD9.8 billion) in total.
The WSF will inject EUR5.7 billion (USD6.2 billion) into the German carrier through silent participation in its capital, including EUR4.7 billion (USD5.1 billion) as fresh equity. The fund will be remunerated at 4% for the years 2020 and 2021, increasing in the following years to 9.5% in 2027. The scheme is designed to incentivise Lufthansa to repay the funding as soon as possible. The silent participation is unlimited in terms of validity but can be terminated at any time in whole or in part, on a quarterly basis.
On top of this EUR5.7 billion in fresh equity, the WSF will also subscribe to shares by way of a capital increase in order to build up a 20% stake in Deutsche Lufthansa AG's share capital at EUR2.56 (USD2.80) per share, amounting to a further EUR300 million (USD328 million) injection.
Lufthansa was trading at EUR8.97 (USD9.80) per share on the Xetra bourse in Frankfurt on the morning of May 26.
The WSF may also increase its stake to 25% plus one share in the event of a takeover of Lufthansa. However, if the fund does not exercise the option, a part of its silent participation will become convertible into a further 5% of shares at the earliest from 2024 and 2026, provided that Lufthansa does not repay this injection by this time.
In any case, the fund's stake will not rise beyond 25% plus one share.
Two seats on the carrier's supervisory board are due to be filled by the appointees of the German government. However, the WSF said it would not exercise its voting rights in any case other than an attempted takeover of Lufthansa.
Besides the WSF's aid, Lufthansa is also set to receive a EUR3 billion (USD3.3 billion) syndicated loan from the German development bank KfW and private banks with a term of three years. This facility is still subject to the approval of relevant bodies.
Lufthansa has committed to waiving future dividend payments and to certain restrictions on executive pay.
The overall package has yet to be approved by Lufthansa's board, its supervisory board, and all relevant competition authorities, including the European Commission.
The package exclusively concerns Deutsche Lufthansa AG and as such, does not impact its subsidiaries in other countries, which will continue to be wholly-owned by the German carrier.
Despite the state bailout, analysts have speculated that Lufthansa will have to leave the Dax index of 30 major German companies trading on the Frankfurt Stock Exchange, the business daily Handelsblatt reported late on May 25.
The airline's share price has fallen by more than 40% since mid-February and has lost almost two-thirds of its value over the last two years. Investors have been expecting the Dax founder member to drop out of the major league, as at the end of February it was ranked 40th in the market of freely tradable shares, 44th at the end of March, and 48th at the end of April. Since a rescue became apparent last week, the stock has only risen by around 8%.
