Lufthansa to choose insolvency instead of state aid?

While Lufthansa’s (LHAB) (LHA) fleet remains grounded and fixed costs that leases and employee wages keep accumulating, the company is looking for options to weather the storm. One of the options could be to declare self-insolvency protections instead of taking up state aid, which would come with attached strings.

Lufthansa (LHAB) (LHA) is weighing whether to enter the so-called protective shield proceedings. The procedure, similar to Chapter 11 Bankruptcy in the United States, would protect Lufthansa (LHAB) (LHA) from creditors’ actions while it tries to trim its fat and to restructure its business. Such considerations are made due to the fact that the German government could provide state aid, but it wants to obtain a stake in the company. This would come with several conditions, including seats on the group’s board and that the group would guarantee job safety, if Lufthansa (LHAB) (LHA) wants to obtain the $9.7 billion (€9 billion) state aid package, reported the Financial Times.

Negotiations between the company and the government are still ongoing.

The group’s chief executive officer Carsten Spohr stated that if the German government were to gain influence within the company, a domino effect could follow with the governments of Austria, Belgium, Switzerland and the two German states, Bavaria and Hesse, reported Die Zeit.

Lufthansa Group owns several subsidiaries, including airlines located in the aforementioned countries like Austrian Airlines, Brussels Airlines and Swiss International Air Lines.

On April 23, 2020, the company stated that it was not possible to foresee when the Group airlines would be able to resume flight operations beyond the current repatriation flight schedule. Furthermore, Lufthansa (LHAB) (LHA) indicated that based on preliminary calculations, its Q1 2020 Adjusted EBIT loss amounted to $1.3 billion (€1.2 billion).

While the airline conglomerate still has $4.7 billion (€4.4 billion) of liquidity left, Lufthansa (LHAB) (LHA) is burning through $1 million (€1 million) per hour, reported AFP.

However, not everyone is convinced by Lufthansa’s (LHAB) (LHA) plea. Ryanair’s chief executive officer Michael O’Leary compared the company to a “crack cocaine junkie” as he questioned why the group would need any additional aid due to the fact that the airline is grounded.


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