Moderators: jsumali2, richierich, ua900, PanAm_DC10, hOMSaR

 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 7:31 pm

While Germany is rejecting the issuance of Coronabonds, it looks increasingly likely that Lufthansa will be offered a combination of capital infusion, loans and staff unemployment benefits for a package totalling over 10 billion Euro's.

The length of this crisis is unknown and the Lufthansa Group has posted 2 billion Euro's of earnings each year for the past decade.
With staff on unemployment benefits, and parked aircraft not burning fuel, it's difficult to understand why Lufthansa would need a quarter worth of revenues injected into it all at once.

This while Germany has been overly critical of Italy subsidising AZ for just 10% that amount over several years despite Italy's more complex geographical context and barely smaller population.

Giving LH such a subsidy can pose a serious threat to competitiveness in the European market.

I'm a business owner too, where's my quarter's worth of subsidies?
With people across Europe going through harsdhip, small businesses going insolvent right and left, why should the taxpayers be propping up these mega corporations before they are even insolvent?

Why doesn't Lufthansa try to sell equity on the open market first? Their equity is still worth something, and equity markets seem to be upbeat, so why not?

Why let Air Berlin go bankrupt but not Lufthansa? Is Lufthansa part of a wider Nomenklatura of favoritised 'big business'?



FRANKFURT (Reuters) - Lufthansa (LHAG.DE) aims to finalise a state aid rescue package worth up to 10 billion euros ($10.8 billion) next week after the coronavirus crisis forced it to ground almost all of its planes, people close to the matter said.

The package will consist of equity from Germany’s new economic stabilisation fund (ESF), state-guaranteed loans from Germany and debt supplied by Austria, Switzerland and Belgium, where Lufthansa subsidiaries are based, they added.

Lufthansa is in intensive negotiations with the governments regarding various financing instruments to secure the group’s solvency in the near future, Lufthansa said as it reported a first-quarter loss of 1.2 billion euros late on Thursday.


https://www.reuters.com/article/us-heal ... SKCN2252Y6
 
tomcat
Posts: 581
Joined: Thu Sep 28, 2000 4:14 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 7:57 pm

What I find disturbing is that there is no explicit mention of requiring the current shareholders to support a share of this bailout package. That's my main objection to it or to the similar packages that will save LH's competitors. To put things into perspective, AF-KLM is bound to receive a state aid of the same order of magnitude: 7 billion from the French government and 2 to 4 billion from the Dutch government from what I've read in the last few hours.
 
MIflyer12
Posts: 8083
Joined: Mon Feb 18, 2013 11:58 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 8:01 pm

Waterbomber2 wrote:

Giving LH such a subsidy can pose a serious threat to competitiveness in the European market.


They're all going to get huge subsidies, or fail, before it's done.

Waterbomber2 wrote:
With people across Europe going through harsdhip, small businesses going insolvent right and left, why should the taxpayers be propping up these mega corporations before they are even insolvent?


Start with reflecting on 'critical infrastructure' and 'network'.

Waterbomber2 wrote:
Why let Air Berlin go bankrupt but not Lufthansa?


Air Berlin failed before COVID-19, and before every carrier was threatened.
 
fraT
Posts: 1174
Joined: Wed Oct 01, 2003 4:32 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 8:12 pm

Waterbomber2 wrote:
While Germany is rejecting the issuance of Coronabonds, it looks increasingly likely that Lufthansa will be offered a combination of capital infusion, loans and staff unemployment benefits for a package totalling over 10 billion Euro's.


What do the so-called Coronabonds have to to with the financial support of one of the most important national companies?

Waterbomber2 wrote:
The length of this crisis is unknown and the Lufthansa Group has posted 2 billion Euro's of earnings each year for the past decade.
With staff on unemployment benefits, and parked aircraft not burning fuel, it's difficult to understand why Lufthansa would need a quarter worth of revenues injected into it all at once.


LH has often stated that they actually need around 3 billion of profits to finance all those shiny new aircraft they have on order. It's not that they have all these earnings of the recent years on their bank accounts.

Waterbomber2 wrote:
This while Germany has been overly critical of Italy subsidising AZ for just 10% that amount over several years despite Italy's more complex geographical context and barely smaller population.


Can you give me a source for that (not that I don't believe you but I haven't seen much about that).

Waterbomber2 wrote:
Giving LH such a subsidy can pose a serious threat to competitiveness in the European market.


Why is that. As you are mentioning below, other countries are doing the same with their national carriers, actually most of them.

Waterbomber2 wrote:
I'm a business owner too, where's my quarter's worth of subsidies?
With people across Europe going through harsdhip, small businesses going insolvent right and left, why should the taxpayers be propping up these mega corporations before they are even insolvent?


If you are located in Germany, you should also be able to receive government aid. Is your business "systemrelevant"? Probably not. But that's the reason LHG will receive an over proportional amount of aid.

Waterbomber2 wrote:
Why doesn't Lufthansa try to sell equity on the open market first? Their equity is still worth something, and equity markets seem to be upbeat, so why not?


Which equity are you talking about? Aircraft? I guess the market is a bit down at the moment.

Waterbomber2 wrote:
Why let Air Berlin go bankrupt but not Lufthansa? Is Lufthansa part of a wider Nomenklatura of favoritised 'big business'?



Because AB was losing money in good times. Their business plan was not sustainable. LHG -as you mentioned- made huge profits in those years when AB was in deep red.
 
User avatar
usdcaguy
Posts: 1523
Joined: Mon Jan 26, 2004 12:41 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 8:14 pm

Most, though not all, major carriers are benefiting from a subsidy at this point in time, and this is just another example of Germany looking after its own, as it always has. The US is also subsidizing its major carriers to a similar degree, so we can hardly fault them. Because much of what LH will receive is in the form of debt, I don't see an issue with this. We also have to remember the thousands of people working for these companies receiving financial packages. I think a much bigger issue than the aid LH is getting is that some carriers such as VS and VA are not getting the support they should, even if they are in poor financial shape.

I will say that at times I look at LH Group with envy. They are masters at keeping themselves afloat and thriving, even if their carriers not based in Germany have had their rough spots. Both Germany's and Lufthansa's dedication to bringing Germans who were stuck abroad home was outstanding and is just another example of how well Germans look after themselves. This is much more than I can say about the US, who frankly was slow at orchestrating a mass return of Americans home. Those flights were even operated mostly by charter and foreign airlines instead of flights operated by the US3.
 
User avatar
calstanford
Posts: 70
Joined: Mon Dec 04, 2017 2:16 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 8:25 pm

I'm not a fan of LH (and especially it's management), but come on.
"Giving LH such a subsidy can pose a serious threat to competitiveness in the European market."
Really?
REALLY?

You mean the exact same amount Air France/KLM just got?
 
Eikie
Posts: 112
Joined: Tue Nov 06, 2018 1:15 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 8:30 pm

tomcat wrote:
To put things into perspective, AF-KLM is bound to receive a state aid of the same order of magnitude: 7 billion from the French government and 2 to 4 billion from the Dutch government from what I've read in the last few hours.

I am not sure about AF, but KLM only gets loans for which the government acts as a guarantee.

So no free money for KLM.
 
CRJockey
Posts: 15
Joined: Mon Feb 10, 2020 11:54 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 8:39 pm

Waterbomber2 wrote:
Why doesn't Lufthansa try to sell equity on the open market first?


Absolutely. Their 747-400s and beautiful 346 must be in so hot demand! So many millions to be made before asking for this huge state subsidy that will bring Alitalia, Norwegian and other disadvantaged carriers even further into trouble.
 
mozart
Posts: 2165
Joined: Thu Aug 14, 2003 12:21 am

Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 8:49 pm

Waterbomber2 wrote:
While Germany is rejecting the issuance of Coronabonds, it looks increasingly likely that Lufthansa will be offered a combination of capital infusion, loans and staff unemployment benefits for a package totalling over 10 billion Euro's.


Oh my, where to start...

1) The Coronabonds question has to do with who pays for debts that member countries of the Euro zone amass. Germany does indeed reject them because (i) there is no need for them - other instruments are in place for the Eurozone member countries. As a matter of fact Germany is the largest contributor to the fund (ii) it would take too long to set up the necessary legislation, whilst other instruments are already in place (iii) why should some countries - Germany, Netherlands, etc - be liable for the fiscal ineptness of others?

Waterbomber2 wrote:
The length of this crisis is unknown and the Lufthansa Group has posted 2 billion Euro's of earnings each year for the past decade.
With staff on unemployment benefits, and parked aircraft not burning fuel, it's difficult to understand why Lufthansa would need a quarter worth of revenues injected into it all at once.


Because they still have a large cost burden from other items. Fuel hedges, payments of aircraft, servicing debt, reimbursing customers, etc.

Waterbomber2 wrote:
This while Germany has been overly critical of Italy subsidising AZ for just 10% that amount over several years despite Italy's more complex geographical context and barely smaller population.


Surely you appreciate the difference between the case of Alitalia, where the law was broken (state subsidies not allowed until a few weeks ago) and where one airline could not get its act together over several decades despite a favourable market environment; and Lufthansa, which like all other airlines around the globe and like many big companies are impacted by a sudden and huge external shock, and which merits to be supported and saved just like the others, especially when in a response to the external shock the EU has suspended its rules on state subsidies.

Alitalia was a sh!t hole, saving it served no good purpose. Lufthansa is intrinsically sound and well managed, but is hit by an external shock.

Waterbomber2 wrote:
Giving LH such a subsidy can pose a serious threat to competitiveness in the European market.


How so? Competition policy is about not favouring one specific player vs others. Right now, many/most airlines are getting support from their governments, so they're at a level playing field. Supporting Alitalia during times when all other airlines had to manage themselves was a distortion of the market.

Waterbomber2 wrote:
I'm a business owner too, where's my quarter's worth of subsidies?


Do you require it? If so, have you requested it? Depending on the country your business is in you are likely to get it.

Waterbomber2 wrote:
With people across Europe going through harsdhip, small businesses going insolvent right and left, why should the taxpayers be propping up these mega corporations before they are even insolvent?


1) For the same reasons that they should be propping up small businesses (and they often do) and 2) critical infrastructure

Waterbomber2 wrote:
Why doesn't Lufthansa try to sell equity on the open market first? Their equity is still worth something, and equity markets seem to be upbeat, so why not?


Takes too long. They may still do that, who knows, but right now they needed access to cash. (I presume by "equity" you do indeed mean "equity", i.e. shares in the company - because other posters interpreted it as meaning "assets" such as planes)

Waterbomber2 wrote:
Why let Air Berlin go bankrupt but not Lufthansa? Is Lufthansa part of a wider Nomenklatura of favoritised 'big business'?


Because Air Berlin was a badly managed business that didn't turn out profits because of its own mistakes. And unlike Alitalia, bad performers like AB normally don't get saved.
 
mxaxai
Posts: 1908
Joined: Sat Jun 18, 2016 7:29 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 9:02 pm

Eikie wrote:
tomcat wrote:
To put things into perspective, AF-KLM is bound to receive a state aid of the same order of magnitude: 7 billion from the French government and 2 to 4 billion from the Dutch government from what I've read in the last few hours.

I am not sure about AF, but KLM only gets loans for which the government acts as a guarantee.

So no free money for KLM.

AF-KLM is one company; the money and guarantees from both governments end up in the same place. French banks weren't willing to give loans to AF-KLM so the French government split their part into a direct loan from the state as well as guarantees for the banks.

Granted, it is likely that there are strings attached to the loans to ensure that both KLM and AF benefit equally. But neither company can fail on their own, it's either all or nothing.
 
devron
Posts: 366
Joined: Wed Apr 20, 2011 11:56 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 9:11 pm

No dilution of stakeholder equity? Time to buy LH stock on monday (sure will open 10% higher).
 
Opus99
Posts: 993
Joined: Thu May 30, 2019 10:51 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 9:30 pm

This is not a bailout. This is a mega subsidy. 10 billion euros? I’m all for state aid for LH though.not only is it essential to the German economy but it’s run well and very viable. But I mean if you’re going to get money from the govt. you might as well get some extra cash for later projects/plans
 
User avatar
par13del
Posts: 10337
Joined: Sun Dec 18, 2005 9:14 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 9:42 pm

So no violation of any EU competitive rules?
 
User avatar
PepeTheFrog
Posts: 389
Joined: Mon Dec 16, 2019 10:38 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 9:42 pm

Waterbomber2 wrote:
Why let Air Berlin go bankrupt but not Lufthansa? Is Lufthansa part of a wider Nomenklatura of favoritised 'big business'?


Air Berlin was an unhealthy company. A bail out would not have resolved its underlying problems.

Unhealthy companies go bankrupt.

Lufthansa is a healthy company, but just like everyone else in the world it needs help to deal with the Corona virus.
Good moaning!
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 10:22 pm

PepeTheFrog wrote:
Waterbomber2 wrote:
Why let Air Berlin go bankrupt but not Lufthansa? Is Lufthansa part of a wider Nomenklatura of favoritised 'big business'?


Air Berlin was an unhealthy company. A bail out would not have resolved its underlying problems.

Unhealthy companies go bankrupt.

Lufthansa is a healthy company, but just like everyone else in the world it needs help to deal with the Corona virus.


I'm going to start with this.

Air Berlin was an unhealthy company.
Lufthansa is a healthy company. So remind me, why does a healthy company not have financial reserves in the most cyclical industry despite a decade of record profits?
Remind me also, why should we save "unhealthy" parts of the companies like EW, SN and OS that haven't been profitable in the last decade?

The unhealthy argument is not very convincing.
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 10:26 pm

CRJockey wrote:
Waterbomber2 wrote:
Why doesn't Lufthansa try to sell equity on the open market first?


Absolutely. Their 747-400s and beautiful 346 must be in so hot demand! So many millions to be made before asking for this huge state subsidy that will bring Alitalia, Norwegian and other disadvantaged carriers even further into trouble.


Aircraft are not equity but assets.

I'm talking about selling equity, the same way United Airlines is issuing 1 Billion USD in new shares.

Aircraft are not in demand, but people are still buying shares, so might as well tap that.
As far as I'm concerned, they can issue 1 billion shares at 5 EUR instead of begging for taxpayer money.
 
User avatar
PepeTheFrog
Posts: 389
Joined: Mon Dec 16, 2019 10:38 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 10:31 pm

Waterbomber2 wrote:
Lufthansa is a healthy company. So remind me, why does a healthy company not have financial reserves in the most cyclical industry despite a decade of record profits?


They do have reserves, but not enough to bridge the next 2-3 years which is probably the time it will take for air travel demand to come back.

Being healthy doesn't mean reserves are infinite.

Remind me also, why should we save "unhealthy" parts of the companies like EW, SN and OS that haven't been profitable in the last decade?.


We should not. It's political, nothing more.

According to the definition of capitalism, unhealthy parts should go bankrupt. But then there are the politicians who want to save jobs.
Good moaning!
 
ewt340
Posts: 1272
Joined: Tue Jul 10, 2012 7:22 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 10:41 pm

Lufthansa is in the same league as BMW, Volkswagen or Bayer. We are not talking about some random small companies here. This ain't no Allegiant Air.

They gonna get extreme protections from the Government. Don't understand why some people surprised by this.
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 11:15 pm

PepeTheFrog wrote:
Waterbomber2 wrote:
Lufthansa is a healthy company. So remind me, why does a healthy company not have financial reserves in the most cyclical industry despite a decade of record profits?


They do have reserves, but not enough to bridge the next 2-3 years which is probably the time it will take for air travel demand to come back.

Being healthy doesn't mean reserves are infinite.

Remind me also, why should we save "unhealthy" parts of the companies like EW, SN and OS that haven't been profitable in the last decade?.


We should not. It's political, nothing more.

According to the definition of capitalism, unhealthy parts should go bankrupt. But then there are the politicians who want to save jobs.



So why not let them go bankrupt first and then bail them out in phases, rather than in one time for 2-3 years?
That's what Italy was forced to do with AZ. Bankruptcy was the condition for extending small rescue packages.
That's what Japan was forced to do with JAL.

I think that it's not acceptable to bailout companies before they are in administration, because you are essentially bailing out investors.
Taxpayer money should not be used to protect investments of individuals.
Lufthansa doesn't have cash because they paid out their profits to investors? Ah well, not the taxpayer's problem.
 
Jetty
Posts: 1286
Joined: Wed Nov 11, 2015 12:27 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 11:21 pm

mxaxai wrote:
Eikie wrote:
tomcat wrote:
To put things into perspective, AF-KLM is bound to receive a state aid of the same order of magnitude: 7 billion from the French government and 2 to 4 billion from the Dutch government from what I've read in the last few hours.

I am not sure about AF, but KLM only gets loans for which the government acts as a guarantee.

So no free money for KLM.

AF-KLM is one company; the money and guarantees from both governments end up in the same place. French banks weren't willing to give loans to AF-KLM so the French government split their part into a direct loan from the state as well as guarantees for the banks.

Granted, it is likely that there are strings attached to the loans to ensure that both KLM and AF benefit equally. But neither company can fail on their own, it's either all or nothing.

False. AF and KL have their own balances and bank accounts. Money for KL won’t end up at AF and vice versa, KL fought hard to keep it that way: https://www.zakenreisnieuws.nl/nieuws/c ... ep-rvc-klm (Dutch). Moreover the state aid of the Dutch government has as requirement that no dividens are payed to the holding company before it’s payed back.

There’s a significant difference between LH and AFKL/IAG, the latter created a holding company following a merger while LH just bought other airlines.
Last edited by Jetty on Sat Apr 25, 2020 11:32 pm, edited 3 times in total.
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sat Apr 25, 2020 11:26 pm

MIflyer12 wrote:
Waterbomber2 wrote:

Giving LH such a subsidy can pose a serious threat to competitiveness in the European market.


They're all going to get huge subsidies, or fail, before it's done.

Waterbomber2 wrote:
With people across Europe going through harsdhip, small businesses going insolvent right and left, why should the taxpayers be propping up these mega corporations before they are even insolvent?


Start with reflecting on 'critical infrastructure' and 'network'.

Waterbomber2 wrote:
Why let Air Berlin go bankrupt but not Lufthansa?


Air Berlin failed before COVID-19, and before every carrier was threatened.


Let them fail first. Staff are already on unemployment schemes so it's not like the fleet is going to be double-grounded and everybody in tears.

To me critical infrastructure and network are opposites in LH's case.
LH is 10% critical infrastructure, 90% expendable.
90% expendable because their global network is replicated by and in competition with many airlines in other countries that can fill the same demand that LH addresses. So there is nothing critical about it from the world's point of view nor Germany's point of view.
10% are those routes that only they serve and have a meaningful impact on the economy.
 
kimbra
Posts: 8
Joined: Wed Jun 15, 2016 4:41 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 12:27 am

Railways are mostly partly subsidized and airliners will be as well since they are considered vital for the country
 
oldJoe
Posts: 187
Joined: Fri Jan 10, 2020 11:04 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 1:25 am

@Waterbomber2
from the source of Reuters.coom
The package will consist of equity from Germany’s new economic stabilisation fund (ESF), state-guaranteed loans from Germany and debt supplied by Austria, Switzerland and Belgium, where Lufthansa subsidiaries are based, they added

So I can read words like "Loan" and "Debt" provided by four countries ! Even if the biggest part comes from the German Gov. it helps other airlines of the LHG too.
And then AZ. For how many years they exist on taxpaxers money ? How much EY lost on them ? Why Italians don`t fly their national carrier ? Is LH or Air Dolomiti guilty for that ? Italy is the country in Europe with the highest government debt. This is a fact ! I would not invest into AZ even 1 EUR. It would be the same thing , when somebody turns up and bet 1 million into my old donkey to win the next horse race.
Coronabonds are only good for countries with a high governments debt , because it will pay out the debts on a much lower interest rate and make other countries like Germany or the Netherlands , responsible and lose their top ratings.
I would kindly ask you wich citizenship you have ? For the start : I`m born in Germany and my father was Italian
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 5:09 am

oldJoe wrote:
@Waterbomber2
from the source of Reuters.coom
The package will consist of equity from Germany’s new economic stabilisation fund (ESF), state-guaranteed loans from Germany and debt supplied by Austria, Switzerland and Belgium, where Lufthansa subsidiaries are based, they added

So I can read words like "Loan" and "Debt" provided by four countries ! Even if the biggest part comes from the German Gov. it helps other airlines of the LHG too.
And then AZ. For how many years they exist on taxpaxers money ? How much EY lost on them ? Why Italians don`t fly their national carrier ? Is LH or Air Dolomiti guilty for that ? Italy is the country in Europe with the highest government debt. This is a fact ! I would not invest into AZ even 1 EUR. It would be the same thing , when somebody turns up and bet 1 million into my old donkey to win the next horse race.
Coronabonds are only good for countries with a high governments debt , because it will pay out the debts on a much lower interest rate and make other countries like Germany or the Netherlands , responsible and lose their top ratings.
I would kindly ask you wich citizenship you have ? For the start : I`m born in Germany and my father was Italian



You can read words like debt and loan, but I can also read equity.


By the way, Lufthansa received huge subsidies too since the GFC:
-a Belgium sovereign investment vehicle forgave 125 million EUR in start-up loans to SN around 2013 in exchange for some shady financial instruments that would produce dividends if SN made profits and a capital infusion from LH to SN that brought its shareholding to 49%. A few years later, LH was able to acquire the remaining 51% for free based on a shady performance-based options contract.
-SN had to repay illegal subsidies received around 2015: https://www.tijd.be/ondernemen/luchtvaa ... 76410.html
-Lufthansa was served 500 million EUR in grants + 200 million in state loans when they took over OS
-Swiss was reborn from Swissair after 2.6 billion USD in state aid was injected into it
-LH allegedly receives huge discounts for operating in state-owned Munich airport
-The LH Group benefits of many other forms of state aid, among others generous government contracts in all imaginable forms. This is one example https://www.aerotelegraph.com/en/first- ... king-shape


Germany is the first to point to subsidies that others receive but are very eager to forget all the state aid that they are distributing right and left.
I have been in this industry for a while now and we know exactly what is going on.


I don't agree with AF or KLM receiving subsidies while not under insolvency procedures either. In fact, if afterb receiving the loans, their debt exceeds their assets, they should enter bankruptcy procedures like any other company in France that owes money to suppliers, customers and creditors.

Lufthansa still has a market capitalisation of 3.5 billions, so there is still room to extract funds from capital markets.
And they too, should enter bankruptcy procedures if their liabilities exceed their assets in the course of this crisis.
 
Westerwaelder
Posts: 241
Joined: Fri Apr 03, 2020 12:27 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 5:19 am

Waterbomber2 wrote:
While Germany is rejecting the issuance of Coronabonds, it looks increasingly likely that Lufthansa will be offered a combination of capital infusion, loans and staff unemployment benefits for a package totalling over 10 billion Euro's.

The length of this crisis is unknown and the Lufthansa Group has posted 2 billion Euro's of earnings each year for the past decade.
With staff on unemployment benefits, and parked aircraft not burning fuel, it's difficult to understand why Lufthansa would need a quarter worth of revenues injected into it all at once.

This while Germany has been overly critical of Italy subsidising AZ for just 10% that amount over several years despite Italy's more complex geographical context and barely smaller population.

Giving LH such a subsidy can pose a serious threat to competitiveness in the European market.

I'm a business owner too, where's my quarter's worth of subsidies?
With people across Europe going through harsdhip, small businesses going insolvent right and left, why should the taxpayers be propping up these mega corporations before they are even insolvent?

Why doesn't Lufthansa try to sell equity on the open market first? Their equity is still worth something, and equity markets seem to be upbeat, so why not?

Why let Air Berlin go bankrupt but not Lufthansa? Is Lufthansa part of a wider Nomenklatura of favoritised 'big business'?



FRANKFURT (Reuters) - Lufthansa (LHAG.DE) aims to finalise a state aid rescue package worth up to 10 billion euros ($10.8 billion) next week after the coronavirus crisis forced it to ground almost all of its planes, people close to the matter said.

The package will consist of equity from Germany’s new economic stabilisation fund (ESF), state-guaranteed loans from Germany and debt supplied by Austria, Switzerland and Belgium, where Lufthansa subsidiaries are based, they added.

Lufthansa is in intensive negotiations with the governments regarding various financing instruments to secure the group’s solvency in the near future, Lufthansa said as it reported a first-quarter loss of 1.2 billion euros late on Thursday.


https://www.reuters.com/article/us-heal ... SKCN2252Y6


Your comparison of LH with AZ made me laugh out loudly...thanks for cheering us up in a Sunday morning.
Was it not the Italian government insisting in AZ's dual hub strategy? Flying long haul out if FCO and MXP? Part of the "complex geographical context" was it? I didn't hear the same demands from the German government in Berlin. LH operates long haul from FRA AND MUC instead because doing so from Berlin would be burning money.

And as for "sucking out passengers", I always thought they chose how to get to their destination. And there could well be a reason why they did not chose to fly AZ. Hubs are simply working that way. That is the same all over Europe. LH have the advantage of operating near the centre of Europe, making connections on a lot of routes possible.
 
Blerg
Posts: 4084
Joined: Tue Jan 09, 2018 11:42 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 5:23 am

Anyone know what conditions the German government placed on them before they can get access to this aid? In my opinion they should be forced to either sell or shutdown the unprofitable branches (SN, EW and OS) as their underperformance also affects Lufthansa mainline. With the mess in Austria, this is the perfect opportunity for Lufthansa to get out of it all. Especially now when FR is gearing up for yet another fight.
 
Sokes
Posts: 1666
Joined: Sat Mar 09, 2019 4:48 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 7:15 am

I believe what Waterbomber criticizes is the arbitrary nature of the decision. Why Lufthansa and why not small businesses? I would also like to hear an answer for this question.
Indeed I believe Corona is so big that's the governments duty to prevent another 1929. The government can pay salaries, they can pay back taxes paid over the last three years or whatever other rules the government comes up with. AS LONG AS IT IS NOT ARBITRARY.

I dismiss the critical infrastructure argument. Indeed I argue the opposite is true. Without Lufthansa there wouldn't be stupid bilateral treaties, but real freedom in the sky. People could travel from medium sized cities in Asia to medium sized cities in Germany with one stop.

Equity: The companies expect help, and rightly so. That doesn't mean they should just sit back and relax. Maybe that's a good rule: For each Euro newly issued equity = new shares, four Euro interest free credit for three years is given by the government. One can say it disadvantages sole proprietary companies, but at least it is not arbitrary. And thanks to the attached credit airlines should be able to get money for a reasonable equity dilution. Add other non arbitrary help like paid salaries or whatever else the government is willing to do. These new shares won't be a fire sale.

I recently suggested a government fee on airline tickets. These are paid on an account specific to the airline, to which only the government has access. In case of black swan events/ general downturns, the government can release the money. Like this airlines won't have to come begging for help every few years.

The rule of law does not seem to be appreciated. Arbitrary decisions are widely supported. I am shocked.
Why don't you all come to live for three years in India? Then you will know what are the consequences of arbitrary decisions in politics.
Am I histrionic? Why did high civilizations in history only have a life expectancy of a few hundred years at best? What happened to Venice?
The great wealth we enjoy is a historical anomaly. People seem to take it as a rule, not as the exception.

Those who are interested in an academic view on situations in poorer countries and what we can learn from it can read my post 46 in
viewtopic.php?f=11&t=1444923&p=22176149#p22176149
Why can't the world be a little bit more autistic?
 
Westerwaelder
Posts: 241
Joined: Fri Apr 03, 2020 12:27 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 7:20 am

Blerg wrote:
Anyone know what conditions the German government placed on them before they can get access to this aid? In my opinion they should be forced to either sell or shutdown the unprofitable branches (SN, EW and OS) as their underperformance also affects Lufthansa mainline. With the mess in Austria, this is the perfect opportunity for Lufthansa to get out of it all. Especially now when FR is gearing up for yet another fight.


The Belgian and Austrian governments are contributing to the overall support package so there can't be any question of LH being forced to close SN or OS. They could potentially cede all or part of their ownership but closing down?

I agree that the bailout seems massive and should be tied to conditions. These should be focussed on jobs and the environment though, not on subsidiaries that LH have supported (and presumably benefitted from in some way).
 
Westerwaelder
Posts: 241
Joined: Fri Apr 03, 2020 12:27 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 7:24 am

Sokes wrote:
I believe what Waterbomber criticizes is the arbitrary nature of the decision. Why Lufthansa and why not small businesses? I would also like to hear an answer for this question.
Indeed I believe Corona is so big that's the governments duty to prevent another 1929. The government can pay salaries, they can pay back taxes paid over the last three years or whatever other rules the government comes up with. AS LONG AS IT IS NOT ARBITRARY.

I dismiss the critical infrastructure argument. Indeed I argue the opposite is true. Without Lufthansa there wouldn't be stupid bilateral treaties, but real freedom in the sky. People could travel from medium sized cities in Asia to medium sized cities in Germany with one stop.

Equity: The companies expect help, and rightly so. That doesn't mean they should just sit back and relax. Maybe that's a good rule: For each Euro newly issued equity = new shares, four Euro interest free credit for three years is given by the government. One can say it disadvantages sole proprietary companies, but at least it is not arbitrary. And thanks to the attached credit airlines should be able to get money for a reasonable equity dilution. Add other non arbitrary help like paid salaries or whatever else the government is willing to do. These new shares won't be a fire sale.

I recently suggested a government fee on airline tickets. These are paid on an account specific to the airline, to which only the government has access. In case of black swan events/ general downturns, the government can release the money. Like this airlines won't have to come begging for help every few years.

The rule of law does not seem to be appreciated. Arbitrary decisions are widely supported. I am shocked.
Why don't you all come to live for three years in India? Then you will know what are the consequences of arbitrary decisions in politics.
Am I histrionic? Why did high civilizations in history only have a life expectancy of a few hundred years at best? What happened to Venice?
The great wealth we enjoy is a historical anomaly. People seem to take it as a rule, not as the exception.

Those who are interested in an academic view on situations in poorer countries and what we can learn from it can read my post 46 in
viewtopic.php?f=11&t=1444923&p=22176149#p22176149


Could you please post some examples that show the support for LH as arbitrary? What German, Austrian, Belgian or Swiss companies do you know that have needed but not received aid from their respective government? I'd be interested to see for myself. I don't know many governments in the world that would risk the demise of an employer of 130,000 people.
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 8:08 am

Westerwaelder wrote:
Sokes wrote:
I believe what Waterbomber criticizes is the arbitrary nature of the decision. Why Lufthansa and why not small businesses? I would also like to hear an answer for this question.
Indeed I believe Corona is so big that's the governments duty to prevent another 1929. The government can pay salaries, they can pay back taxes paid over the last three years or whatever other rules the government comes up with. AS LONG AS IT IS NOT ARBITRARY.

I dismiss the critical infrastructure argument. Indeed I argue the opposite is true. Without Lufthansa there wouldn't be stupid bilateral treaties, but real freedom in the sky. People could travel from medium sized cities in Asia to medium sized cities in Germany with one stop.

Equity: The companies expect help, and rightly so. That doesn't mean they should just sit back and relax. Maybe that's a good rule: For each Euro newly issued equity = new shares, four Euro interest free credit for three years is given by the government. One can say it disadvantages sole proprietary companies, but at least it is not arbitrary. And thanks to the attached credit airlines should be able to get money for a reasonable equity dilution. Add other non arbitrary help like paid salaries or whatever else the government is willing to do. These new shares won't be a fire sale.

I recently suggested a government fee on airline tickets. These are paid on an account specific to the airline, to which only the government has access. In case of black swan events/ general downturns, the government can release the money. Like this airlines won't have to come begging for help every few years.

The rule of law does not seem to be appreciated. Arbitrary decisions are widely supported. I am shocked.
Why don't you all come to live for three years in India? Then you will know what are the consequences of arbitrary decisions in politics.
Am I histrionic? Why did high civilizations in history only have a life expectancy of a few hundred years at best? What happened to Venice?
The great wealth we enjoy is a historical anomaly. People seem to take it as a rule, not as the exception.

Those who are interested in an academic view on situations in poorer countries and what we can learn from it can read my post 46 in
viewtopic.php?f=11&t=1444923&p=22176149#p22176149


Could you please post some examples that show the support for LH as arbitrary? What German, Austrian, Belgian or Swiss companies do you know that have needed but not received aid from their respective government? I'd be interested to see for myself. I don't know many governments in the world that would risk the demise of an employer of 130,000 people.


Well in Germany, LGWalter just filed for insolvency after EW, a LH Group airline terminated its contracts with them.
500-ish employees.

Bigger corporations should behave more responsibly than smaller corporations as they have a larger responsibility towards society.
What we see here is the exact opposite.
Big corporations are using their status to force whatever they want instead of apologising to society for being irresponsible.

Small corporations are surviving on savings by stopping all cost centers and renegotiating their debts, putting staff on unemployment, while bigger corporations are on their knees begging for more money than they need for near-term survival.

So it seems to me that the big corporations not only expect to be saved after they managed their companies irresponsibly, but on top of that they are trying to gain an edge over competitors or potential new entrants by asking more than what they need for survival.

This is why I think that it's important that they enter insolvency/bankruptcy procedures.
These procedures take out the greed factor and solely focus on survival, as seen in the AZ bankruptcy.

The Coronavirus is a tough crisis.
However, this does not justify removing all existing (legal) frameworks in the name of saving company A or B.
AZ's bailout over the years was a challenge of the framework. Should it be allowed or not was a questions asked over and over again.
A little virus comes along, politicians have a chance to stop it early on but do nothing (on purpose?), suddenly all frameworks are tossed overboard and we are in the jungle with some getting more than they need, while others are getting nothing.

So yes, Sokes is right that this kind of arbitrary action should be stopped immeadiately.

Run out of money? Renegotiate with creditors. If unable to service debt, declare insolvency and let court appoint oversight.
Too many companies running out of money? Everybody gets aid to the same standard or nobody gets aid, to avoid distorting the competitive landscape.

Where is the EU with all their omni-present competition authorities?
Are they deliberately doing nothing because the big powers are telling them to stand down?
That's called corruption.
Last edited by Waterbomber2 on Sun Apr 26, 2020 8:18 am, edited 1 time in total.
 
Westerwaelder
Posts: 241
Joined: Fri Apr 03, 2020 12:27 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 8:16 am

Waterbomber2 wrote:
Westerwaelder wrote:
Sokes wrote:
I believe what Waterbomber criticizes is the arbitrary nature of the decision. Why Lufthansa and why not small businesses? I would also like to hear an answer for this question.
Indeed I believe Corona is so big that's the governments duty to prevent another 1929. The government can pay salaries, they can pay back taxes paid over the last three years or whatever other rules the government comes up with. AS LONG AS IT IS NOT ARBITRARY.

I dismiss the critical infrastructure argument. Indeed I argue the opposite is true. Without Lufthansa there wouldn't be stupid bilateral treaties, but real freedom in the sky. People could travel from medium sized cities in Asia to medium sized cities in Germany with one stop.

Equity: The companies expect help, and rightly so. That doesn't mean they should just sit back and relax. Maybe that's a good rule: For each Euro newly issued equity = new shares, four Euro interest free credit for three years is given by the government. One can say it disadvantages sole proprietary companies, but at least it is not arbitrary. And thanks to the attached credit airlines should be able to get money for a reasonable equity dilution. Add other non arbitrary help like paid salaries or whatever else the government is willing to do. These new shares won't be a fire sale.

I recently suggested a government fee on airline tickets. These are paid on an account specific to the airline, to which only the government has access. In case of black swan events/ general downturns, the government can release the money. Like this airlines won't have to come begging for help every few years.

The rule of law does not seem to be appreciated. Arbitrary decisions are widely supported. I am shocked.
Why don't you all come to live for three years in India? Then you will know what are the consequences of arbitrary decisions in politics.
Am I histrionic? Why did high civilizations in history only have a life expectancy of a few hundred years at best? What happened to Venice?
The great wealth we enjoy is a historical anomaly. People seem to take it as a rule, not as the exception.

Those who are interested in an academic view on situations in poorer countries and what we can learn from it can read my post 46 in
viewtopic.php?f=11&t=1444923&p=22176149#p22176149


Could you please post some examples that show the support for LH as arbitrary? What German, Austrian, Belgian or Swiss companies do you know that have needed but not received aid from their respective government? I'd be interested to see for myself. I don't know many governments in the world that would risk the demise of an employer of 130,000 people.


Well in Germany, LGWalter just filed for insolvency after EW, a LH Group airline terminated its contracts with them.
500-ish employees.

Bigger corporations should behave more responsibly than smaller corporations as they have a larger responsibility towards society.
What we see here is the exact opposite.

Small corporations are surviving on savings by stopping all cost centers and renegotiating their debts, putting staff on unemployment, while bigger corporations are on their knees begging for more money than they need for near-term survival.

So it seems to me that the big corporations not only expect to be saved after they managed their companies irresponsibly, but on top of that they are trying to gain an edge over competitors or potential new entrants by asking more than what they need for survival.

This is why I think that it's important that they enter insolvency/bankruptcy procedures.
These procedures take out the greed factor and solely focus on survival, as seen in the AZ bankruptcy.

The Coronavirus is a tough crisis.
However, this does not justify removing all existing (legal) frameworks in the name of saving company A or B.
AZ's bailout over the years was a challenge of the framework. Should it be allowed or not?
A little virus comes along, politicians have a chance to stop it early on but do nothing (on purpose?), suddenly all frameworks are tossed overboard and we are in the jungle with some getting more than they need, while others are getting nothing.


Other than some rambling about smaller and larger companies and what they should and shouldn't do in your opinion, the only example you provide is Luftfahrtgesellschaft Walter? They were placed into administration by their owners. They clearly state they see no opportunity for them in the foreseeable future. Could you please provide a link to where they say they were denied a loan by the government as reason for LGW's demise?

And as for removing existing legal framework: removing (ignoring) existing framework is the only reason AZ still exists. Let's be clear, pretty much every EU country has at some stage ignored rules of the common market when it suited their domestic needs and Italy with AZ are no exception.
 
abcgogo
Posts: 29
Joined: Wed Mar 18, 2020 4:57 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 8:20 am

I disagree with the idea of big-corporations needing to be bailed out, especially the airline industry since they don't do anything useful per se (in terms of contribution to humanity unlike many companies whose inventions/innovations are proprietary and have changed lives of humans worldwide) and are merely operators of equipment. Airlines are glorified transporters of humans & cargo, not so different from companies who operate buses and trucks to transport humans & cargo by road. If an airline collapses today, a new one can take it's place tomorrow or day-after. Not hating/ranting against airlines, but expressing my POV here.

The private airlines absolutely do NOT deserve a bailout. They may endlessly hype about the number of employees, aircraft, so called "brand-value", etc. of theirs but the fact is they are not irreplaceable. Pan-Am was once considered a mighty airline & brand yet it collapsed and even it's (once hyped) brand is nearly worthless today.

To make things worse, these private-airlines do not even evacuate their citizens in times of crisis unless the Govt pays them (meaning govt has to pay regardless of airline being private or state-owned). In fact El-Al of Israel and the much maligned (rightly so) Air-India can be genuinely considered an asset to their respecitve nations because they fearlessly work for Israeli and Indian citizens respectively evacuating them whenever called upon by the Govt. Private airlines dont move a finger unless their Govt begs them to do so AND only if the insurance companies agree to cover the planes. Remove the insurance factor and the private airlines will leave their own citizens stranded even if Govt begs them. State-owned El-Al and Air-India are leagues ahead in that regard because they know that the Govt has their back even if insurance-agencies act funny by refusing to cover the aircraft for rescue-missions. When have we seen the likes of Lufthansa, United, American, Delta, British-Airways, Alitalia, etc. do anything useful such as evacuations, emergency dispatch of cargo, etc. ? Rarely or never. These airlines only know to ask for bailouts, handouts, subsidies, long-term-cheap-loans, etc. and religiously follow the system of "privatized-profits, public-losses".

Two threads where I asked who payed Lufthansa for repatriation flights and why the famous airlines of nations don't install airstairs on their aircraft in case they need to do evacuation operations, respectively. Speaks volumes of the "privatized-profits, public-losses" system followed by these airlines.
viewtopic.php?t=1442983#p22098743
viewtopic.php?f=5&t=1443037#p22164661

What is the big deal about the big-corporations ? Nothing. The "big-corporations" of today, were the small/medium business of yesterday or day-before-yesterday. The problem with this rigid (brainwashed) mindset that "big corporations must be saved because they employ lots of people" is that it only focuses on keeping the big-guys big while "sacrificing" (for lack of a better term) the small/medium guys. This means that the big-guys never fall and the small/medium guys never get a chance to become big.

A collapse of Lufthansa or any airline is no big deal because another airline can take it's place. The aircraft are still there, the trained-staff are still there, the brand is available for sale, the airport-slots are available for sale, etc. We saw this in India where a lot of scaremongering was done regarding collapse of inefficient and crony-capitalist Jet-Airways. Yet today we have seen how effortlessly the same aircraft, crew, airport-slots have been absorbed by other airlines. Of course, it is a slow process to completely replace Jet-Airways (or any airline), but due to Coronavirus it is much much easier to replace any airline because no airline is operating at full capacity meaning it is cheaper to acquire the devalued-brand and lesser-number of aircraft. A big airline may operate say 10 Boeing 777-300ER aircraft instead of 30, so if it collapses and a new airline acquires the assets, the new airline too will operate the same 10 777-300ER. The coronavirus issue is reason enough NOT to support airlines because it is different to allowing a 100% functional airline to collapse (which anyway should be allowed to happen in a capitalist free-market economy). Also, the collapsed airlines means the new airlines can get to start fresh with new records, new employee-contracts, etc. ensuring the "legacy-costs" (liabilities, unions, etc) are severely reduced or even eliminated. A much fairer chance to start fresh with a clean sheet rather than carry baggage of the past.
 
Sokes
Posts: 1666
Joined: Sat Mar 09, 2019 4:48 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 9:34 am

Westerwaelder wrote:
Could you please post some examples that show the support for LH as arbitrary? What German, Austrian, Belgian or Swiss companies do you know that have needed but not received aid from their respective government? I'd be interested to see for myself. I don't know many governments in the world that would risk the demise of an employer of 130,000 people.

I live in India. I don't know if there are companies that didn't receive help. I hope they all do.
I read that Angela Merkel, some other politicians and head of Lufthansa Carsten Spohr discuss about help.
https://www.dvz.de/rubriken/logistik/de ... genda.html
If there are laws applicable to all, e.g. the government pays salaries, what is there to discuss?
If all companies get some help, but the biggest companies get additional arbitrary help, in future big companies will keep less equity. After all the government always comes running to help.
I focus very strongly on moral hazard and I'm extreme hostile to arbitrary help. The rule of law is the foundation of rich countries, arbitrary decisions the foundation of poor countries. I agree most rich countries from time to time give arbitrary help. I fear one example will lead to another. I believe in "everybody should have the same chances". I find it outrageous that politicians even discuss about individual help. They can discuss with Spohr and come up with a general rule. And with general I mean general, not industry specific.

Occasional bankruptcies are unavoidable with this ideology. But I believe arbitrary decisions are penny wise, pound foolish.
Did banking get reformed after banks received help? Banks spend a lot of money on former politicians by giving attractive job offers. They know why they do it. It's not that our society isn't corrupt. It's just we are corrupt to a much smaller extend than poor countries. I believe corruption and arbitrary decisions have a relation to each other.

I really don't mind Lufthansa getting help. This is not 2008. Lufthansa isn't a bank with gambling losses. I even said that I believe it is the government's duty to prevent a 1929, which means massive help for business. I just object to the arbitrary nature. And so does at least one competitor, Ryanair.
https://www.finanzen.net/nachricht/akti ... rn-8779274

Your 130.000 employees argument indicates that it is time to split Lufthansa in smaller units, independent if they survive or not. Or do you think it is o.k. to have banks/ other businesses that are too big to fail? Moreover as Lufthansa as flag carrier enjoys an unfair advantage over competitors.

I wonder what the British government wants to do if RR goes into trouble? RR has critical technology. Once engineers get unemployed they might find new jobs and not come back. This would be a more tricky question. I guess during black swan events the government has to take over ownership of critical technology companies the moment they go into insolvency and inject some money. In short: bankruptcy of the company is not an option, the shareholders however go empty handed. But Lufthansa isn't such a company. They deserve the same help as all other companies.
They want help? Terms and conditions apply.
Why can't the world be a little bit more autistic?
 
Kilopond
Posts: 561
Joined: Wed Jun 15, 2016 10:08 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 10:19 am

Sokes wrote:
I believe what Waterbomber criticizes is the arbitrary nature of the decision. Why Lufthansa and why not small businesses? I would also like to hear an answer for this question.[...]


I`m sorry to say so, but Waterbomber is just spreading blatant lies. With the beginning of the lockdown all effected small businesses became entitled to direct cash support of € 9,000 to 15,000 – with no need to repay. (Needless to say that prosecutors are investigating hundreds of fraud cases already).

To stay on-topic, the airline Condor (IATA: DE) with an annual revenue of 1.7 billion is getting 550 million. Lufthansa is roughly 21 times bigger, with an annual revenue of 36,7 billion.
 
mozart
Posts: 2165
Joined: Thu Aug 14, 2003 12:21 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 10:21 am

Having read all the contributions, I frankly struggle to see what this Waterbomber person is trying to argue.

Is it a case against government subsidies? Does he just have LH and regret AZ? Is he trying to argue fair rules of a market economy? Or the opposite, trying to justify that fair market rules are nonsense and therefore that AZ should continue to be propped up (which it is)?

The point is that he/she fails to acknowledge is a difference between

- an intrinsically healthy business, which is doing whatever it can do itself to manage itself out of a mega crisis caused by an external shock, and who gets help to bridge the time until the externality is no longer a threat
- an airline that is a badly managed sh!thole run that even despite numerous attempts to save it including by illegal state aid during good times did not manage to stand on its own feet

The two cases are very different.
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 10:36 am

Kilopond wrote:
Sokes wrote:
I believe what Waterbomber criticizes is the arbitrary nature of the decision. Why Lufthansa and why not small businesses? I would also like to hear an answer for this question.[...]


I`m sorry to say so, but Waterbomber is just spreading blatant lies. With the beginning of the lockdown all effected small businesses became entitled to direct cash support of € 9,000 to 15,000 – with no need to repay. (Needless to say that prosecutors are investigating hundreds of fraud cases already).

To stay on-topic, the airline Condor (IATA: DE) with an annual revenue of 1.7 billion is getting 550 million. Lufthansa is roughly 21 times bigger, with an annual revenue of 36,7 billion.


I'm not based in Germany but I'm going to give you my example.
I'm entitled to zero subsidies because I crisis-proofed my business by diversifying into very divergent sectors and removing all debt despite having to watch as competitors recklessly splashed money into marketing and expanding more than I could with my conservative strategy.
Now they are technically insolvent but they are entitled to subsidies and they can get money to stay home while I'm working with 20% less revenues.

That's insane and this illustrates how competition is distorted and these very subsidies are promoting a reckless business management over responsible business management.

Reckless companies that have prioritised expansion and running competitors out of business over crisis-proofing their own business, should not be rewarded but severely punished.
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 10:52 am

mozart wrote:
Having read all the contributions, I frankly struggle to see what this Waterbomber person is trying to argue.

Is it a case against government subsidies? Does he just have LH and regret AZ? Is he trying to argue fair rules of a market economy? Or the opposite, trying to justify that fair market rules are nonsense and therefore that AZ should continue to be propped up (which it is)?

The point is that he/she fails to acknowledge is a difference between

- an intrinsically healthy business, which is doing whatever it can do itself to manage itself out of a mega crisis caused by an external shock, and who gets help to bridge the time until the externality is no longer a threat
- an airline that is a badly managed sh!thole run that even despite numerous attempts to save it including by illegal state aid during good times did not manage to stand on its own feet

The two cases are very different.


Well Mozart from Austria I suppose?

This is not about AZ, I don't care about AZ and you can read my posting history to see that I supported AZ going into bankruptcy.

AZ is a great example of an airline that was oppressed for many years because of existing competitive frameworks within the EU.
They were bankrupt and got lifelines of hundreds of millions per year while keeping a low profile and sticking to essential services, keeping people employed, not running competitors out of business.
This happened while competitor LH Group bombarded the Italian market with hundreds of flights per day, I'm thinking 500 flights per day if you count all subsidiaries with the intent of ousjing competitors out of business.

Now, 2 months into a new crisis, the LH Group is going to get a huge subsidy without any rules, any framework, any control?

To me, an airline that is technically insolvent a few months into a grounding where payroll cost is completely shifted to the taxpayer is not a well-managed airline at all.

Crisis survivability is as important if not more important as operational profitability in the reliably cyclical commercial aviation business.

Well-managed? Then surely they can well-manage themselves out of this crisis without any help?
Last edited by Waterbomber2 on Sun Apr 26, 2020 10:54 am, edited 1 time in total.
 
ExpatVet
Posts: 148
Joined: Mon Sep 03, 2018 4:35 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 10:53 am

par13del wrote:
So no violation of any EU competitive rules?


Of course not, you only get accused of that if your company name is Malév.
L101, 733/4/5/8/9, 741/2/3 (never managed 744!), MD 80/2/3/8/90, MD11, DHC8/3/Q4, E170, E195, 757, 77W, 763/4, Travel Air 2000. A300/310, A319/320/321, A333, ATR-72, probably a few others I forget. Passenger, not pilot, alas! BUD based.
 
Blerg
Posts: 4084
Joined: Tue Jan 09, 2018 11:42 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 10:55 am

ExpatVet wrote:
par13del wrote:
So no violation of any EU competitive rules?


Of course not, you only get accused of that if your company name is Malév.


Or Cyprus Airways.
 
Waterbomber2
Topic Author
Posts: 1302
Joined: Mon Feb 04, 2019 3:44 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 10:56 am

ExpatVet wrote:
par13del wrote:
So no violation of any EU competitive rules?


Of course not, you only get accused of that if your company name is Malév.


Or Cyprus Airways.
 
Sokes
Posts: 1666
Joined: Sat Mar 09, 2019 4:48 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 11:01 am

Kilopond wrote:
Sokes wrote:
I believe what Waterbomber criticizes is the arbitrary nature of the decision. Why Lufthansa and why not small businesses? I would also like to hear an answer for this question.[...]


I`m sorry to say so, but Waterbomber is just spreading blatant lies. With the beginning of the lockdown all effected small businesses became entitled to direct cash support of € 9,000 to 15,000 – with no need to repay. (Needless to say that prosecutors are investigating hundreds of fraud cases already).

To stay on-topic, the airline Condor (IATA: DE) with an annual revenue of 1.7 billion is getting 550 million. Lufthansa is roughly 21 times bigger, with an annual revenue of 36,7 billion.

Can you expand on the rules according to which this support is decided? Do same rules apply to Lufthansa?
9 billion Euro help/ 130.000 employees = 76.923 Euro/ employee.
I agree Lufthansa has high capital cost. But then a restaurant may have to pay rent.

One can't argue that Lufthansa deserves 9 billion Euro arbitrary help just because small businesses also get 15.000 Euro help which is not arbitrary.
I assume the help to Condor was arbitrary?
Why can't the world be a little bit more autistic?
 
mxaxai
Posts: 1908
Joined: Sat Jun 18, 2016 7:29 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 11:48 am

par13del wrote:
So no violation of any EU competitive rules?

The EU has given permission to all member states to take any necessary actions that will benefit their economy. They also guaranteed loans from the ESM so that the member states don't need to worry about their own finances. The re-nationalization of AZ wouldn't have been possible otherwise, nor would the bailout of AF-KL, DE or LH (and others) have been permitted, at least not in the way it happened.
 
Sokes
Posts: 1666
Joined: Sat Mar 09, 2019 4:48 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 12:10 pm

Sokes wrote:
Maybe that's a good rule: For each Euro newly issued equity = new shares, four Euro interest free credit for three years is given by the government. One can say it disadvantages sole proprietary companies, but at least it is not arbitrary. And thanks to the attached credit airlines should be able to get money for a reasonable equity dilution. Add other non arbitrary help like paid salaries or whatever else the government is willing to do. These new shares won't be a fire sale.


Waterbomber2 wrote:
I'm not based in Germany but I'm going to give you my example.
I'm entitled to zero subsidies because I crisis-proofed my business by diversifying into very divergent sectors and removing all debt despite having to watch as competitors recklessly splashed money into marketing and expanding more than I could with my conservative strategy.
Now they are technically insolvent but they are entitled to subsidies and they can get money to stay home while I'm working with 20% less revenues.
...
Reckless companies that have prioritised expansion and running competitors out of business over crisis-proofing their own business, should not be rewarded but severely punished.


You complain only debt gets help, I proposed only new equity should get help. I adjust my earlier proposal:
Companies should get help with salaries. That's great for room cleaning business, not so great for capital intensive industry. Therefore additional help has to be given in proportion to assets, e.g. interest free credit for three years for 20% of assets. This also treats corporations, sole proprietorship, PvtLtd... equal. No equity should be given.
Lufthansa would get it's nine billion Euros, as they have nearly 50 billion Euros assets, but so would all other capital intensive businesses.
https://www.macrotrends.net/stocks/char ... tal-assets

If a businessman has no debt, he wastes his capacity to do business, at least in case of a PvtLtd. I believe below 20% equity ratio risk becomes too high, above 40% it's unnecessary save. Who is supposed to absorb savings? credit card users? foreigners? Our system requires business to have debt.

Interesting what you wrote about running competitors out of business.
Indigo ordered planes long ago. At the time of delivery market value was above purchase price. Indigo sold the planes to lessors and leased them back. With the profits from the sale they subsidized tickets to increase market share. They are the biggest private airline in India now with nearly 50% market share. The earlier biggest airline, Jet Airways, went bankrupt.

What to say about this industry? And why do banks not demand higher equity ratios in this industry?
Maybe this industry is so madhouse because of the economy of scales. Better to fill a B777-300ER than an A330-200. Happy hunting with competitors.
Indeed there is a story from an airline executive telling this story:
Five friends meet a lion. One friend immediately removes his shoes. Another friend asks: "You think you can outrun a lion?" Answer: "I only need to outrun one of you." I guess taking risk pays in this industry.
If A321XLR gets a chance to take over many routes the situation hopefully improves.
Why can't the world be a little bit more autistic?
 
peterjohns
Posts: 187
Joined: Fri Jan 02, 2009 11:49 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 12:14 pm

This is a exceptionally dangerous crisis to the travel industry in general, and the airline industry in particular.
There probably won´t be a single airline flying the flag or "legacy" airline that will not have to receive financial help in order to survive.
I am very glad about any money any airline gets.
 
Mortyman
Posts: 5857
Joined: Sat Aug 12, 2006 8:26 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 12:51 pm

Waterbomber2 wrote:

I'm a business owner too, where's my quarter's worth of subsidies?



I don't know what type of business you have, but:

1: An airline could be regarded as critical infrastructure for a nation and can therefore be considered more important, than lets say a restaurant

2. Not every business can be saved., that is just the reality of the situation. Some businesses are more important than others. It can be because they serve vital services to a nation, employes alot of people, produces valuable technology and holds valuable knowledge etc

In other words, Airbus and Boeing are more important to save than for instance your local hot dog stand.
Last edited by Mortyman on Sun Apr 26, 2020 12:56 pm, edited 1 time in total.
 
spannacomo
Posts: 120
Joined: Wed May 30, 2018 5:38 pm

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 1:54 pm

Waterbomber2 wrote:
...
This while Germany has been overly critical of Italy subsidising AZ for just 10% that amount over several years despite Italy's more complex geographical context and barely smaller population.

Well AZ got since 2017 1.3B€ non refundable loans, and they are getting in June another 0.5B€ in equity against 3B€ turnover and for sure this is not the last money injection from the government. This is still much more than LHG 10B€ against their >35B€ turnover.
What is really incredible though is that the last 0.4B€ AZ cashed from the government in Dec 2019 were planned to be enough for AZ to be sold in May 20, and they are enough to allow nationalization in the same period, which leads to think that AZ losses are not increased by coronavirus.
 
User avatar
SQ22
Moderator
Posts: 1883
Joined: Sat Feb 25, 2012 9:29 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 1:57 pm

Please keep this thread on topic or it will be locked. Please remember to provide links to your sources when presenting fact.

There is a dedicated thread on AZ which can be found here:

Alitalia News and Discussion Thread
 
blueflyer
Posts: 4352
Joined: Tue Jan 31, 2006 4:17 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 4:18 pm

oldJoe wrote:
The package will consist of equity from Germany’s new economic stabilisation fund (ESF), state-guaranteed loans from Germany and debt supplied by Austria, Switzerland and Belgium, where Lufthansa subsidiaries are based, they added

Some involved in the negotiations between Belgium and Lufthansa have reported that the a portion of the "loan" that Lufthansa is asking for is more of a "gift" with the rest at little to no interest and no other string attached, not even strings that would ensure the loan would benefit Brussels Airlines and its operations in Belgium... Let's not pretend that loans from Austria, Switzerland, and Belgium could not, and perhaps would not, be used to re-finance the mothership absent well-crafted terms.

It is hard to know exactly where the negotiations stand. A couple of days ago a usually reliable newspaper announced that Lufthansa and Belgium were very near an agreement (denied by the minister leading the negotiations), but only hours later another news source reported that negotiations were going so badly they suspended all talks...
 
mxaxai
Posts: 1908
Joined: Sat Jun 18, 2016 7:29 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 5:23 pm

blueflyer wrote:
oldJoe wrote:
The package will consist of equity from Germany’s new economic stabilisation fund (ESF), state-guaranteed loans from Germany and debt supplied by Austria, Switzerland and Belgium, where Lufthansa subsidiaries are based, they added

Some involved in the negotiations between Belgium and Lufthansa have reported that the a portion of the "loan" that Lufthansa is asking for is more of a "gift" with the rest at little to no interest and no other string attached

If the ESF / WSF is used there will be conditions. These apply to any companies that ask for such money. They include that the company:
- must prove that it is vital for the economy as a whole
- must not have been in financial trouble before the crisis, but has suffered significant losses during the crisis and is unable to secure regular financing through other means
- must pay "typical" interest and fees for any loans and guarantees
- must repay any loans within 60 months (5 years); the duration of partial government ownership is without a defined limit
- must present a viable strategy to operate during and after the crisis, in a manner that maximises the macro-economic benefit and ensures that the company returns to profitability within a reasonable timespan (similar to the US DOT forcing carriers to serve destinations, for example)
- must accept any conditions from the government including limits on dividends and wages as well as restrictions how the money can be used.
 
tomcat
Posts: 581
Joined: Thu Sep 28, 2000 4:14 am

Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 6:36 pm

Just thinking out loud. LH has operating expenses and financial expenses in the order of 35 billion a year, that's about 3 billion a month. Now with most of its operations shut down and most of their staff on temporary unemployment or in other form of temporary leave, what's their residual monthly cash burn? Also, given the current shape of the air transport market, what would be the objective lease rate of an aircraft? If their residual cash outlay is higher than say 500 million a month, I would think that someone is too greedy out there, either the staff or the leasing companies or the banks. This would need to be worked on. One could then question what would be the use of 10 billion euros. Are they meant to feed some greedy people? Something doesn't add up.

Popular Searches On Airliners.net

Top Photos of Last:   24 Hours  •  48 Hours  •  7 Days  •  30 Days  •  180 Days  •  365 Days  •  All Time

Military Aircraft Every type from fighters to helicopters from air forces around the globe

Classic Airliners Props and jets from the good old days

Flight Decks Views from inside the cockpit

Aircraft Cabins Passenger cabin shots showing seat arrangements as well as cargo aircraft interior

Cargo Aircraft Pictures of great freighter aircraft

Government Aircraft Aircraft flying government officials

Helicopters Our large helicopter section. Both military and civil versions

Blimps / Airships Everything from the Goodyear blimp to the Zeppelin

Night Photos Beautiful shots taken while the sun is below the horizon

Accidents Accident, incident and crash related photos

Air to Air Photos taken by airborne photographers of airborne aircraft

Special Paint Schemes Aircraft painted in beautiful and original liveries

Airport Overviews Airport overviews from the air or ground

Tails and Winglets Tail and Winglet closeups with beautiful airline logos