Why Lufthansa May Refuse €9 Billion State Aid, File For Bankruptcy Instead

Germany’s flag carrier Lufthansa is currently negotiating with the government for state aid, though there’s a chance the carrier may actually turn it down.

Why Lufthansa May Refuse €9 Billion State Aid, File For Bankruptcy Instead
Lufthansa may reject state aid and file bankruptcy Photo: Sam Chui

The airline is still exploring the possibility of declaring insolvency as an option, while it is awaiting the outcome of negotiations for a 9 billion ($9.7 bn) state aid. 

The Lufthansa Group’s CEO Carsten Spohr has already made it clear that the carrier can’t survive any longer without state aid at this time of crisis.

The largest European carrier announced that it is losing 1 million per hour so far since the crisis began due to the outbreak of novel corona virus. The airline has already planned to restructure and downsize some of its fleet.

Why Lufthansa May Refuse €9 Billion State Aid, File For Bankruptcy Instead
CEO Spohr does not want political influence in the airlines Photo: Lufthansa

Although, the German government has agreed to provide aid with a rescue package of 
9 Billion, a few conditions are attached. These conditions are the reasons behind the possibility of refusal of government aid.

The conditions involved are as follows:

  • The aid provided by the German government will be in form of a loan and a capital release.
  • The money released in form of loan will accrue a 9% interest rate.
  • The German government will hold at least two positions on the company’s supervisory board
  • The German government will also take at least 25% stake in the airline.

However, the group has shown strong disagreements about the terms of this financial aid. The group doesn’t want to run the company as a state owned airlines.

The company also refused to accept such high interest loans proposed in the agreement.

Why Lufthansa May Refuse €9 Billion State Aid, File For Bankruptcy Instead
The group does not want the airline to be run as a state owned airline Photo: Lufthansa

The other main reason behind this disagreement is the provision of at least two seats in the supervisory board. If the government got two seats, they would always be in the side of employees.

This could eventually make impossible for Lufthansa to make tough business decisions regarding efficient and productive operation. These decisions might include employees layoff as well.

The group’s current management still want to continue the operation putting faith in an entrepreneurial manner.

Why Lufthansa May Refuse €9 Billion State Aid, File For Bankruptcy Instead
Lufthansa might reach a deal with the agreement after negotiation Photo: JetPhotos

The current CEO, Spohr warned against having too much government influence in the company leading inefficiencies and poor decision saying,

“Lufthansa has had the three best years in its corporate history. If it is to be successful in the future, it must continue to be able to shape its fate in an entrepreneurial manner,”

Lufthansa Group’s CEO has said internally that he would prefer to lead the company into insolvency rather than have politicians talking him into it, according to the group’s cabin crew union Ufo.

Questions such as “If we fly to Osaka from Munich or from Zurich” should never be a political decision.

So, Lufthansa is considering the possibility of going into insolvency like a protective shield. Under this, the airline will continue to run under current management, but an administrator would be appointed to aid the company.

However, there is still possibility that the government and Lufthansa will meet somewhere in the middle and the group won’t go through a protective shield.

Lufthansa might suffer severely after rejecting government’s proposal Photo: JetPhotos

Lufthansa might suffer hardly than what the government is proposing after rejecting the government’s proposal at some point.

Do you think Lufthansa will accept the proposal from the German government? Let us know in the comments below:

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