
German government to bail Lufthansa out of bankruptcy with nearly $10B state aid - ZeljkoS
https://www.businessinsider.com/german-state-bailing-lufthansa-out-of-bankruptcy-with-10-billion-2020-4
======
rndgermandude
The German media does not have this story (yet?).

The best I can find that the German govt made an offer for a EUR 9B bailout,
which would be (in large part) a credit which would lead to a commitment of
EUR 500M per year in repayments (which the Lufthansa doesn't want), and the
govt wants two board sets (which the Lufthansa doesn't want).

It is also reported that the Lufthansa is looking into opening a
"Schutzschirmverfahren" (special case of bankruptcy law, which you can file
when you're not yet insolvent but soon might be, aimed at allowing a company
to become viable again mostly by itself), has EUR 4.4B in the bank, and wants
to have a final decision by end of May. (from a story published less than 1h
ago in SZ).

Maybe BI knows something everybody else doesn't...

~~~
itcrowd
Frankfurter Allgemeine reports seem to agree with your statements and also see
1-2 week timeframe for further negotiations. Strange that BI somehow has the
scoop.

[https://m.faz.net/aktuell/wirtschaft/lufthansa-erhaelt-
erste...](https://m.faz.net/aktuell/wirtschaft/lufthansa-erhaelt-erste-
staatshilfen-aus-der-schweiz-16747710.html)

~~~
itcrowd
Can't edit above post anymore, here's a small update.

The Suddeutsche Zeitung has a similar story to FAZ where there have been
negotiations between gov and Lufthansa, but that the two parties are far apart
and negotiations are not close to an end. Timeframe for finalizing
negotiations is said to be before the end of May. SZ seems to have some
insider sources too, so now I am really in doubt about the legitimacy of the
Business Insider reporting.

[https://www.sueddeutsche.de/wirtschaft/schutzschirm-
lufthans...](https://www.sueddeutsche.de/wirtschaft/schutzschirm-lufthansa-
tickets-1.4891100)

------
beefield
I have always difficulties understanding these kind of statements:

"appointment of civil servants or politicians to the supervisory board was
unacceptable in the eyes of Lufthansa's executives."

Like, how is that any of executives' business who is on the supervisory board?
If they do not like the money, find other investors, easy as that? It is
almost like "ownership" is not a concept that should be associated with
corporate shareholders at all, because it seems that the relationship between
shareholders and corporation has very little resemblance of actual ownership.

Same thing applies to "hostile takeovers". What on earth is that? How come
executives of the company I have shares at think they are anyhow entitled to
have an opinion about me selling my shares to whom I want? None of their
business whatsoever. If they want to have opinion, offer me better price.

~~~
wjnc
1\. In a dual board one could describe members of both boards as executives. I
can quite understand supervisory board members to be unwilling to work with
political agents on their board if they feel the firm's not lost yet.

2\. Hostile takeovers are hostile to current management. You are obviously
free to do what you want with your share. It's the firm treating the takeover
as hostile. Shareholders are free to vote in / remove executives in order to
change the way a takeover is perceived.

------
wiz21c
Does it mean that every german will have to pay about $10B / 80m = 125 euros
for that ? So it means that they'll have, for example, to wait a little longer
to buy their next phone, or lunch ? (I ask the question here because that's
the kind of reasoning I read in the press but I'd like to know if it's as
simple as that)

~~~
longtermd
Nope. Because they have already paid all of this in taxes. It means, that the
10 bn won't get 'invested' by the government in another project, e.g., welfare
benefits, infrastructure, health, or education. Alternatively, it means:
nothing of all of those, but inflation will rise an additional 0.0001% (if the
funding source is printing money vs. using tax payer money)

~~~
econcon
Airline is the infrastructure tho, cheap air travel is available throughout
EU. If you remove that, economy will take major hit. There is hardly any
reading block with cooperation like EU. You fly from France to Italy and work
with people there then you fly to Switzerland and demonstrate your product
their and then you deal with marketing agency in UK to market your products at
global level. It becomes inefficient without cheap air travel.

~~~
alexott
Lufthansa is never close to cheap flights...

~~~
odiroot
Yes, quite the contrary. It's one of maybe 10 five stars airlines. It's an
elite airline.

~~~
econcon
I was under impression that executive class adds most value in a company which
might be the target market of this airline company.

It seems I've been proven wrong already.

------
smoyer
One thing that I think the business world has finally learned during the
COVID-19 social distancing is that business travel isn't nearly so important
as we had imagined. And attending conferences was always fun but it's been
amazing to watch how fast conferences have switched to an on-line format (well
... the technical ones that I would attend).

So it's my opinion that the airlines, hotels, conference centers and
taxi/ride-share companies are in for a rude awakening. Tourism might increase
when this isolation ends, but I think there's going to continue to be a
serious contraction in the market segments that support business traveling.
And when you combine it with the financial damage done to businesses during
the pandemic, they've got two fiscal reasons for eliminating business travel.

~~~
abdullahkhalids
At least in academia, people usually don't go to conferences to attend the
talks - they are uploaded on youtube and you could watch them from home.
People go because they are good networking events. That is something which you
can't really do online.

Edit: of course, a minority of attendees are there to present their work,
which can indeed be done online.

~~~
a3_nm
In my academic field (computer science), people go to conferences because you
have to present in person the research that you publish there. The question of
whether traveling to the conference is worthwhile at all is irrelevant. With
conferences moving online, the question starts to have some importance and the
answer isn't so clear.

------
mrep
Yahoo finance says their market cap is 4 billion [0] and yet they are getting
a bailout worth 2.5 times their market cap. That's crazy.

[0]:
[https://finance.yahoo.com/quote/lha.de/](https://finance.yahoo.com/quote/lha.de/)

~~~
vonmoltke
They are trading at a really small fraction of their book value, currently
0.37[1]. In addition, their book value is being weighed down by debt.

I don't know why people fixate on market cap in cases like this.

[1] [https://finance.yahoo.com/quote/LHA.DE/key-
statistics?p=LHA....](https://finance.yahoo.com/quote/LHA.DE/key-
statistics?p=LHA.DE)

~~~
SilasX
Are we sure that the "market cap:book value ratio" is not an artifact of a)
the stock price being marked down by the market, while b) their (e.g.) planes
have not been explicitly revalued in light of the lower demand?

That's probably why the board doesn't shrug and vote to liquidate assets and
pay shareholders more than their shares are worth.

------
netcan
For the sake of argument....

What happens if no airline gets any bail-out money? Do we end up with worse
air travel in a year or two?

~~~
commandlinefan
Yeah, it's the same line of reasoning behind farm subsidies: running a farm is
risky, and if it's so risky that nobody does it, none of us eats... so we all
chip in (whether we want to or not) to farmers to offset their losses.

~~~
Aachen
Okay, so the farmer's risk is low crop yield, farmer bankrupt, no food, people
die.

What about airlines? No passengers, airlines bankrupt, only very limited air
travel possible, covid-19 ends, someone buys the airplanes from the asset
auction, gives them an inspection, life continues as usual?

Solidarity is a whole other matter: if you can't work (because you're disabled
or because you can't find work) you get money from the government. Doesn't
matter if you're a farmer or airline employee, nor whether the company you
worked for goes bankrupt. That's no reason to keep the companies alive, the
people won't personally go bankrupt. (That might be different in developing
countries, but those won't have 10B bailouts for nonessential businesses
anyway.)

------
whalesalad
Meanwhile American Airlines needs like 12 trillion dollars to keep the lights
on. Can't wait for the day where we let that pathetic airline fail.

~~~
hanniabu
No, we can't let them fail, that'd be capitalism!

~~~
joyj2nd
Many major national carriers have national importance. So, no, they won't go
bankrupt. Be it Lufthansa, Air France, Air China, or whatever.

Airlines like Ryanair and Wizz air might be different.

~~~
gumby
Curious what you mean by “national importance?” Do you mean ego/national
pride, or that without a state provided carrier there would be no flights
(unlikely for a Germany or Belgium, but possible for, say, the Marshall
Islands or Togo)? Or that there is some sort of treaty-mandated interlink that
requires a designated flag carrier (I know this last case was true decades
ago, but I’m not sure the US even has one any more)?

~~~
joyj2nd
Well, a country with a decent population size and a decent economy has to rely
on air transport. Just now many countries flew out their citizens for example.

As far as I know, Lufthansa, like some other airlines, have a government owned
golden share.
[https://en.wikipedia.org/wiki/Golden_share](https://en.wikipedia.org/wiki/Golden_share)

In fact, if I remember right, an EU based airline is not even allowed to be
owned by more than 50% of non EU share holders.

~~~
gumby
FWIW Australia is coordinating flights via foreign airlines in addition to
QANTAS. In fact United is running more flights to AUS than QANTAS.

LH’s golden share was sold off in the 1990s (that’s in the article).

------
klohto
Other sources are reporting only $1B. What is this article based on?

~~~
jotm
A tweet.

------
sonthonax
What does this mean in the context of state aid rules?

I'm quite worried that the EU's attempts to pick up the pieces of the economic
carnage will clash with Britain's attempts. Inability to agree what counts as
fair, will be a major block in any negotiation, and catalyse the economic
partition of Brexit.

~~~
makomk
It means that the wealthy states get wealthier and the poorer get poorer.
State aid rules have been massively relaxed, but the structural problems with
the eurozone that mean Germany can afford to bail out their businesses like
this and other poorer, worse-hit countries cannot are still there. I'm not
sure Brexit is the EU-related economic partition we should be most worried
about right now.

~~~
oaiey
To the point.

------
tannhaeuser
Sadly, France and The Netherlands bailing out Air France and KLM last week,
resp., forced the hand and diminished leverage for the German federal state I
guess. I thought subsidies (to former state monopolies, of all things) was the
one thing that need explicit consent under EU treaties. Now the people of DE,
FR, and NL have to bail out a business that has no perspective to return a
profit for the foreseeable future. Those who have protested against excessive
air travel have to pay the bills long term (before coronavirus, flight shaming
and "Fridays for Future" was a thing). I think this is a big missed
opportunity to come up with a sustainable agenda to put a large electorate
behind as a perspective out of the coronavirus economy crisis.

~~~
StreamBright
The problem is that these companies are so inefficient and the conserved the
30 years old business practices very well internally because the governments
are keep bailing them out. Maybe it would be for the better to let them fall
and start over. Build an airliner that operates effectively and widen the
margin. There are other alternatives. For 10 - 15B EUR (estimated) we could
connect the major European cities with a high speed train network powered by
renewables / green energy. If we keep bailing them out this surely won't
happen.

~~~
lostlogin
Your point brings up rail companies. I can’t see that they would be doing
great right now, but a brief search doesn’t seem to show that they are
circling the drain. I wonder why?

~~~
StreamBright
Not sure. The good thing about rails vs flight is that you can swap out the
energy source. As your energy production gets greener your entire travel gets
greener. With airlines, it is not even a remote possibility to change from
kerosine based engines to electric or other green alternatives, Europe is very
small and relatively dense. It would be a great way of commuting.

------
gumby
Shrewd negotiation by the CEO! Unlike, say, Volkswagen which has a significant
stake owned by Niedersachsen and politically appointed board directors,
Lufthansa will have two non-politician directors and no state veto.

~~~
oaiey
A blocking minority sounds different than a "no state veto".

------
ArmandGrillet
Question: Lufthansa's market cap is less than 5Bn, why is the German
government not buying it for that amount, bailing it, then (hopefully) selling
it in a decade when the situation improves?

France is bailing Air France, Germany is bailing Lufthansa, what does it mean
for a company like EasyJet? Will it get bailed too or just crash due to
governments helping some companies but not others?

~~~
fulafel
After buying, they'd just have ownership but would still have to pump in just
as much additional money. (Also you can't generally succeed in buying a
company at its market cap value off the stock market becausenthe stock price
goes up witj the demand)

------
znpy
Aren't state aids forbidden in the EU?

~~~
jotm
Not for bailouts of struggling business (of special importance) if I
understand it correctly.

~~~
econcon
How is it not unfair advantage?

If you let a business keep trying again and again, yes it offers unfair
advantage over companies in other countries which might not have funds to
support their companies.

One who flies the highest, falls the highest - these companies remain
unaffected by small cities but when large one strucks these are getting bailed
out.

------
LargoLasskhyfv
[https://www.spiegel.de/fotostrecke/cartoon-des-tages-
fotostr...](https://www.spiegel.de/fotostrecke/cartoon-des-tages-
fotostrecke-142907.html#bild-8d1f948c-503c-4869-9e10-324291e08147)

------
tasubotadas
>The company will take the money but the state won't get a say: this is a
concise summary of what Lufthansa's Executive Board, headed by CEO Carsten
Spohr, has been telling German politicians in the past few weeks.

That's awesome.

Create a crappy business, hire 130k employees, and get the state to pay for
your failures.

At this point, I would be happier that they would just give the money to
Google and Facebook which proved that they know a thing or two on creating
value and sustainable business.

Obviously, airlines that have been doing fine (Ryanair, Wizzair?), won't get a
dime which seems completely absurd. I did some quick googling and apparently
Ryanair has similar opinion:
[https://www.bloomberg.com/news/articles/2020-04-24/ryanair-s...](https://www.bloomberg.com/news/articles/2020-04-24/ryanair-
s-o-leary-warns-eu-he-may-sue-to-stop-airline-bailouts)

~~~
notahacker
Ryanair isn't 'doing fine', it's trying to force customers to accept vouchers
instead of the cash refunds it is legally obliged to provide.

And the idea that Google and Facebook could do a good job of maintaining the
profitability of an airline whilst being obliged to pay the capital costs of
aircraft it's banned from flying is the epitome of Silicon Valley arrogance.
Let's be honest, Google and Facebook haven't even adapted their core
competency of connecting people digitally well to this crisis - otherwise
there's no way people would be grudgingly using Zoom instead...

~~~
GordonS
Can confirm, they have £1k of my money, which they've held on to for over a
month already, and are refusing to refund. It looks like it will be several
months _at best_ before they refund it. I plan to do a chargeback in the
meantime.

I get that Ryanair are in financial difficulties, but they can't expect their
customers to bail them out, and are behaving unlawfully - I'm damn sure I
wouldn't get away with it, so neither should they.

~~~
derriz
It's not only Ryanair - Air France are doing the same.

~~~
wdb
Air France also want the profits from KLM which actually runs well compared to
AF. I wouldn’t mind if they split up again.

------
ridgewell
Lufthansa: Where fuel surcharges don't match up with reality.

------
papermachete
Thanks for your taxes.

~~~
Hackbraten
You’re welcome.

------
monksy
Based on my experience with Lufthansa. That's an organization that should
fail. If anything happens on your journey that is not average, the agents
always blame you first.

~~~
haunter
>If anything happens on your journey that is not average, the agents always
blame you first.

So basically every airline ever? Unless you are in the ultra premium VIP
exclusive membership club.

~~~
joyj2nd
Nah. Aeroflot, Turkish, Ethiopian and Delta have pretty good customer service.

~~~
joyj2nd
Why the downvote? Have you used this airline? Aeroflot, Turkish and Ethiopian
are in an excellent geostrategic position for the future.

I hold SU and TK gold elite, both just emailed me: Due to the crisis the both
extend my gold elite status for 12 months/6 months without any need to
accumulate miles to reach status.

------
joering2
Regarding US bailouts, can someone here more knowledgeable can help me
understand how a company that has been fined tens of millions of dollars for
ocean pollution, is not US-based incorporated, does not pay taxes on US soil,
is in large part responsible for citizens obesity, and hire less than 0.17%
American citizens, got bailed out by Feds to the tune of billions of dollars?

[https://www.wsj.com/articles/how-fed-intervention-saved-
carn...](https://www.wsj.com/articles/how-fed-intervention-saved-
carnival-11587920400)

~~~
MattGaiser
Based on that article, they did not bail out Carnival. The Fed just bought a
pile of other assets, which meant that investors had more cash to put into
other investments like bonds for Carnival, driving their interest rates on the
bond market down.

It was not directly bailed out. Action by the Fed just made all debt
investment more attractive and that made more investors compete for such
investment, lowering the interest rates Carnival (and every other corporation
issuing bonds) faced.

------
linuxftw
The only reason an airline would need a bailout is if they have acquired
significant debt that they are unable to service. If the airline is being
'bailed out' what's really happening is the airline's creditors are being
bailed out.

The banks can afford to take a haircut on their debt and they can renegotiate
terms. Of course, many of the creditors might be unsecured bond holders,
which, I'm unsure of how the scam works in Germany, but in the US that
effectively is some crappy fund you own in your 401k. So the banks smartly
package and sell debt to idiots (common people with a pension/retirement
account).

The government has to keep the worthless bond market afloat because everyone's
invested in the scam. That helps keep interest rates low so the mega
corporations can get free money from bonds that bear interest well below
market rates.

