LONDON – It is without a doubt a contentious topic. The world as we know it has changed beyond all recognition from the simple and routine of just a few short months ago.

Just about every person and their dog have an opinion on the state propping up ailing airlines hit with the cataclysmic force since the onset of the Coronavirus pandemic.

This morning, Saturday, May 30, another airline joined the list of operators who have taken to relying on the state to weather the storm brewing in wake of tough successive governments introducing draconian lockdown measures, closing borders and restricting the movement of people in an attempt to control the spread of the virus.

Lufthansa A319 Departing Munich Airport

The Executive Board of Cologne-based German flag carrier Lufthansa (LH) has today accepted the commitments from the EU Commission that would allow a stabilization package negotiated with the Economic Stabilization Fund of the Federal Republic of Germany.

The package is valued at around nine billion euros, consisting of an equity injection by the government, who will in return take a 20% stake in the airline by snaffling up shares at the nominal value of 2.56 euros.

The value of the Deutsche Lufthansa AG group shares has risen this week as mutterings that a bailout was imminent reaching a low at the end of March valuing at just 7.18 euro and closing 9.14 euros a share on Friday 29th May.

Photo: Clement Alloing

The other aspects of the bailout includes on a capital contribution of 5.7 billion euros, the silent stake held by the government and should the need arise the option to swap the silent stake into an additional 5% equity stake has been retained which would be used to prevent a takeover.

The 20% stake owned by the government will see them hold two seats on the board of directors, one of which will be on the audit committee. It has been agreed that the government will not vote at shareholder meetings unless there is about to be an imminent takeover.

The final element of the stabilisation measures are supplemented by syndicated credit facility at over 3 billion euros, with the participation of German State bank KfW and a number of private banks for a term of three years.

Lufthansa B747 Arriving into Frankfurt

When Ryanair (FR) first broke into Germany in early 2000, there was a little bit of friendly rivalry between the Irish giant and the flag carrier.

Ryanair had to settle with flying from smaller regional airports such as Cologne, Bremen, and Nuremberg.

Even to this day, low-cost airlines have struggled to muscle into the LH strongholds at Frankfurt and Munich, often with advances often being blocked by the regulators and airport authorities.

Part of the deal will however see LH be forced to transfer to one competitor each at Frankfurt and Munich up to 24 pairs of slots.

The slots will be transferred away for 18 months if no new competitor takes up the slots they can be extended to existing airlines at both hubs.

It will be interesting to see which airlines will seize the moment and enter the lucrative and tightly controlled markets in both cities.

The bailout package will hopefully see Lufthansa and the group airlines through this difficult time. However as Europe starts to return to the free and easy ways of old, will the aviation sector ever be the same again?