Lufthansa bailout stumbles over EU demand giving up slots
The €9 billion bailout deal the German government agreed with its flag carrier Lufthansa was foiled by the airline’s board, refusing to give up slots at its key airports Frankfurt and Munich. The latter is a demand from the EU Commission to ‘preserve competition’ and sets chancellor Merkel onto a collision course with Margarethe Vestager.
No pay in June
Meanwhile, Lufthansa’s boss, Carsten Spohr, says the airline is up to its neck in liquidity problems, making it unsure it will be able to pay its personnel’s wages in June. He told representatives of the staff, including those of the daughter airlines, it was ‘humiliating’ having to beg for financial help in several countries. But the outcome of that is linked to securing the survival of Lufthansa with German aid first.
Lufthansa’s board is convinced the €9 billion bailout is the “only viable alternative for maintaining solvency”, but puts its decision to agree with the terms for the deal on hold to ‘investigate the impact of the restrictions’ first. According to the Brussels-based political news agency, Politico, “Merkel vows a ‘tough fight’ with Brussels over Lufthansa rescue”.
‘Illegal state aid’
By giving up several takeoff and landing slots at is ‘home’ airports, the fear exists that low-cost carriers will jump on the occasion, weakening Lufthansa’s position. Mainly as these airports serve as a hub for destinations to North America and Asia. Ryanair already threatened to appeal against the German bailout, saying its ‘illegal state aid’.
The conditions EU Commissioner for Competition Margrethe Vestager is enforcing, are part of the ‘Amendment to the Temporary Framework for State aid measures’ the EU issued end of March to tackle the corona crisis. It enforces strict rules to prevent that airlines that get state aid will use that to take over markets once the crisis ends.
The difference between Air France
Those conditions – giving up slots at airports where the company has a dominant position – don’t apply to Air France, though, while getting a €7 billion aid package. The difference, the EU says, is the latter giving a state loan that is to be paid back, while in the German deal, the government is getting (at least temporarily) a 20% stake in the company.
As Italy has nationalized Alitalia end of March to prevent it from collapsing, there is no doubt among experts the EU will ask the airline to make concessions too to preserve competition.