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Eikie
Posts: 112
Joined: Tue Nov 06, 2018 1:15 pm

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

Sun Apr 26, 2020 7:40 pm

tomcat wrote:
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.

As far as I understand, total expense of an (legacy) airline is almost three equal parts, fuel, labour and the rest.
That last part is rent for offices, telecommunication contracts, other contracts, aircraft lease, etc. While you might save some, most of this is long time commitment and not easy to save a lot on.

I do not know the exact deal with the government about labour, but in the Netherlands not 100% of the salaries are paid. For example, KLM still has an expense of a third of the original salary payments. So there might still be a large expense here.

Fuel might not be used that much and might be cheap, but is also hedged. So LH can't fully benefit from the lower price, but (probably) also has to pay a fine, as many contracts stipulate a minimum amount a carrier has to use/buy (which they now not do).
So the fuelbill is higher than you might expect.

Overall LH stated a week or two ago they had a hourly expense of 1 million, making it 600-700 a month.
 
NYCVIE
Posts: 281
Joined: Mon Jul 04, 2016 11:01 pm

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

Sun Apr 26, 2020 7:46 pm

Waterbomber2 wrote:
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.

This argument completely ignores that the cause of this crisis has had an adverse affect in virtually every country in the world. So these other "many airlines that can fill LH demand" will also be receiving state aid or be declared bankrupt.

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.

I already responded to you in the other thread, but LH will fight tooth and nail to keep OS and the Austrian market because even if they no longer care about OS it would be stupid for them to allow FR to significantly expand in a neighboring German speaking market. Austria has heavy strategic value to LH, perhaps more than it does for FR so they will not be getting out anytime soon. Anyways as you pointed out the other countries will be providing money for their respective airlines so no need to shut anything down.

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.

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.

I am genuinely sorry if your business has fallen on hard times. Without knowing what your business or industry is, I am also confused, however, as to why your competitors would be entitled to aid that you are also not entitled to if you request it?

I also think we need to be realistic. This is a recession that will be more severe than anything we've seen in modern times. To suggest that airlines that were making money should have been prepared for months of negative bookings and a travel downturn that may wipe out demand for years is not fair in my opinion. To the airlines that are better positioned to whether this storm, that is great as they will not need these subsidies (which by the way will need to be repaid, most likely with concessions attached and interest) but we are in a situation where very healthy companies are faced with extremely bleak outlook. With all due respect, you mentioned 20% less revenue - there are airlines expecting 90+% revenue loss coupled with high fixed costs. How long can your crisis-proofed company stay afloat with virtually no income and only expenses?

Waterbomber2 wrote:
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.

It is actually funny that you're attempting to use AZ as an example of anything. You seriously think LH group is flying 500 flights a day to Italy? LOL! AZ, based in Italy, flies less than 600 flights a day.

tomcat wrote:
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.

I don't think it's difficult to imagine that the cash burn would be high. Airlines have high fixed costs that do not change because the operations are shut down. Jetblue is burning $10m USD a day and DL is burning $50m USD a day.
 
tomcat
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Sun Apr 26, 2020 8:12 pm

NYCVIE wrote:

tomcat wrote:
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.

I don't think it's difficult to imagine that the cash burn would be high. Airlines have high fixed costs that do not change because the operations are shut down. Jetblue is burning $10m USD a day and DL is burning $50m USD a day.


I understand your argument, but what would happen if LH would propose to only pay 5% of the lease rate while an aircraft is not flying. Can the leasing companies obtain better deals elsewhere at this moment? LH could even return some aircraft to the leasing companies as they are expecting a prolonged reduced activity after the operations will be resumed. I know, they are penalties to be paid when an aircraft is returned early but again the leasing companies can make a reality check. If they push LH and other airlines into bankruptcy, they will have hard time to find new customers quickly once the trafic will resume. If the government support is meant to just keep feeding leasing companies as if it was just another day of regular business, then I'm of the opinion that this putting too much burden on the tax payer. Let the financial companies take the hit first and then let's see how much equity they would need to survive.
 
Waterbomber2
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Sun Apr 26, 2020 9:07 pm

Lease contracts may not provide relief for the situation, but the problem is that if airlines declare insolvency, lessors become just another creditor among a long list of creditors.
So lease contracts can be renegotiated. Payments can be reduced for the duration of the grounding in exchange for a lease term extension for the same duration as the grounding.
Lessors will make concessions, because technically aircraft are not building hours or cycles and are being stored, and going the legal route is not in their interest.
Plus, there is potential for making extra money out of the deals over the term of the aircraft's life.
As written in another thread, if lessors taker an aggressive stance, refuse concessions and repossess their aircraft assets, they may need to revalue them in their balance sheets and this could technically bankrupt them too considering the tanking values of aircraft.

Same for debt with aircraft as collateral.
Airlines will have to negotiate with banks to extend the term of their repayments, offering to for instance only to pay interests and resume principal payments as soon as the grounding is lifted.

So Tomcat is right, this has to be taken step by step.


Airlines can and should hence be able to mitigate 85% to 90% of their expenses.
So if the LH Group has 30 billion in annual expenses, they should be able to reduce them to 3-4.5 Billion EUR per year.
This is well within the scope of commercial loans.
Also, since the length of the grounding is unknown, this should be done in tranches of one or two quarters, not a ridiculous 2 to 3-year package.

So yes to giving them a bailout in the form of loans, but under court supervision (insolvency procedures) after they burn through all their own money, in tranches of 2 billions and only based on invoiced amounts.

Same for AF-KLM and IAG if they seek out bailouts.
 
fraT
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Re:

Sun Apr 26, 2020 9:45 pm

Waterbomber2 wrote:
Airlines can and should hence be able to mitigate 85% to 90% of their expenses.


Sorry to be that blunt but you have no idea what you are talking about.
Such a number would only be possible by actually furloughing a similar number of employees. In Germany the government pays 60% respective 67% (when you have kids) of the net salary when the employee is down to 0% of the working time. If the employees work 40% or 60% then LH has to pay the salary for this amount of working time. Since LHG as most other legacy carriers tries to keep as many employees, the labor costs can't go down as much to reach your illusory numbers.
Yes, fuel burn is down but due to the hedging contracts, it is also not so much down as many think. Of course it is easy now to say that hedging is not that smart but it is always easy to say that now. I did not see anybody here talking negatively about hedging three months ago.
And as others have mentioned, costs related to aircraft leases, maintenance, parking space for aircraft and other stuff are not going away. LHG owns a higher percentage of their planes than most other airlines but still you would need to explain why leasing companies should accept the stop of payments or a lower amount of what was agreed to. They also have financial problems as many other businesses as well.

The only chance for airlines like LHG to come somewhere close to your numbers would be to fire the majority of the staff. Is that what you are suggesting?
 
NYCVIE
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Re:

Sun Apr 26, 2020 11:12 pm

Waterbomber2 wrote:
Lease contracts may not provide relief for the situation, but the problem is that if airlines declare insolvency, lessors become just another creditor among a long list of creditors.
So lease contracts can be renegotiated. Payments can be reduced for the duration of the grounding in exchange for a lease term extension for the same duration as the grounding.
Lessors will make concessions, because technically aircraft are not building hours or cycles and are being stored, and going the legal route is not in their interest.
Plus, there is potential for making extra money out of the deals over the term of the aircraft's life.
As written in another thread, if lessors taker an aggressive stance, refuse concessions and repossess their aircraft assets, they may need to revalue them in their balance sheets and this could technically bankrupt them too considering the tanking values of aircraft.

Same for debt with aircraft as collateral.
Airlines will have to negotiate with banks to extend the term of their repayments, offering to for instance only to pay interests and resume principal payments as soon as the grounding is lifted.

So Tomcat is right, this has to be taken step by step.


Airlines can and should hence be able to mitigate 85% to 90% of their expenses.
So if the LH Group has 30 billion in annual expenses, they should be able to reduce them to 3-4.5 Billion EUR per year.
This is well within the scope of commercial loans.
Also, since the length of the grounding is unknown, this should be done in tranches of one or two quarters, not a ridiculous 2 to 3-year package.

So yes to giving them a bailout in the form of loans, but under court supervision (insolvency procedures) after they burn through all their own money, in tranches of 2 billions and only based on invoiced amounts.

Same for AF-KLM and IAG if they seek out bailouts.


There was never a question of "bailouts" that would not be repaid. That is what took airlines like Malev and Estonian Air down and what AZ continues to do. What we're talking about are loans that will be repaid over time. AF and KLM already as of a few days ago secured their loans.

As fraT wrote, labor alone is 20-30% of any airlines operating cost. Then you have leases on space, parking costs, aircraft leases etc. The leases still need to be paid - the leasing companies are also financially constrained at the moment. This is why you see airlines opting to park their older aircraft that in theory are actually cheaper to operate right now. A paid off 747 in an age of low fuel prices would make sense if not for the fact that there is already overcapacity and airlines are on the hook for expensive leases for fuel efficient aircraft.
 
smartplane
Posts: 1507
Joined: Fri Aug 03, 2018 9:23 pm

Re:

Mon Apr 27, 2020 3:55 am

Waterbomber2 wrote:
Lease contracts may not provide relief for the situation, but the problem is that if airlines declare insolvency, lessors become just another creditor among a long list of creditors.
So lease contracts can be renegotiated. Payments can be reduced for the duration of the grounding in exchange for a lease term extension for the same duration as the grounding.
Lessors will make concessions, because technically aircraft are not building hours or cycles and are being stored, and going the legal route is not in their interest.
Plus, there is potential for making extra money out of the deals over the term of the aircraft's life.
As written in another thread, if lessors taker an aggressive stance, refuse concessions and repossess their aircraft assets, they may need to revalue them in their balance sheets and this could technically bankrupt them too considering the tanking values of aircraft.

Same for debt with aircraft as collateral.
Airlines will have to negotiate with banks to extend the term of their repayments, offering to for instance only to pay interests and resume principal payments as soon as the grounding is lifted.

In normal circumstances, lessors will forgive, defer, discount, switch monthly payments to end of lease balloon payment.... if they perceive the lessee can trade out.

These aren't normal times. Recovery time frame is uncertain. New normal is unknown. Lessors are under the same financial pressures as their customers.

Banks aren't immune, because there is concentration of commercial aviation exposure.
 
Waterbomber2
Topic Author
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Re: Re:

Mon Apr 27, 2020 4:47 am

fraT wrote:
Waterbomber2 wrote:
Airlines can and should hence be able to mitigate 85% to 90% of their expenses.


Sorry to be that blunt but you have no idea what you are talking about.
Such a number would only be possible by actually furloughing a similar number of employees. In Germany the government pays 60% respective 67% (when you have kids) of the net salary when the employee is down to 0% of the working time. If the employees work 40% or 60% then LH has to pay the salary for this amount of working time. Since LHG as most other legacy carriers tries to keep as many employees, the labor costs can't go down as much to reach your illusory numbers.
Yes, fuel burn is down but due to the hedging contracts, it is also not so much down as many think. Of course it is easy now to say that hedging is not that smart but it is always easy to say that now. I did not see anybody here talking negatively about hedging three months ago.
And as others have mentioned, costs related to aircraft leases, maintenance, parking space for aircraft and other stuff are not going away. LHG owns a higher percentage of their planes than most other airlines but still you would need to explain why leasing companies should accept the stop of payments or a lower amount of what was agreed to. They also have financial problems as many other businesses as well.

The only chance for airlines like LHG to come somewhere close to your numbers would be to fire the majority of the staff. Is that what you are suggesting?


With most of the fleet grounded, most staff in LH Group are on furlough, ie Kurzarbeit at 0%, and the payroll cost is virtually ZERO (except for Switzerland) for the airline.
Virtually because some small items like company pension schemes and insurance (hospital insurance, loss of license/medical insurance) schemes, car leases for management staff, may still be running, but those are tiny in proportion to the total payroll cost.

I don't know how it works in Switzerland but Belgium, Austria and Italy also have similar job retention programs.

https://www.cnbc.com/2020/04/03/kurzarb ... yoffs.html

Kurzarbeit is already a huge subsidy that LH is receiving.

Note: Get your facts right before you tell other people that they don't know what they're talking about.
 
Waterbomber2
Topic Author
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Re: Re:

Mon Apr 27, 2020 5:17 am

smartplane wrote:
Waterbomber2 wrote:
Lease contracts may not provide relief for the situation, but the problem is that if airlines declare insolvency, lessors become just another creditor among a long list of creditors.
So lease contracts can be renegotiated. Payments can be reduced for the duration of the grounding in exchange for a lease term extension for the same duration as the grounding.
Lessors will make concessions, because technically aircraft are not building hours or cycles and are being stored, and going the legal route is not in their interest.
Plus, there is potential for making extra money out of the deals over the term of the aircraft's life.
As written in another thread, if lessors taker an aggressive stance, refuse concessions and repossess their aircraft assets, they may need to revalue them in their balance sheets and this could technically bankrupt them too considering the tanking values of aircraft.

Same for debt with aircraft as collateral.
Airlines will have to negotiate with banks to extend the term of their repayments, offering to for instance only to pay interests and resume principal payments as soon as the grounding is lifted.

In normal circumstances, lessors will forgive, defer, discount, switch monthly payments to end of lease balloon payment.... if they perceive the lessee can trade out.

These aren't normal times. Recovery time frame is uncertain. New normal is unknown. Lessors are under the same financial pressures as their customers.

Banks aren't immune, because there is concentration of commercial aviation exposure.


In normal circumstances lessors will most certainly not offer any concessions, they will repossess the aircraft and remarket it.

Lessors and banks are not immune, far from it, but it's not the taxpayer's responsibility to burden itself with the heavy weight of an entire capital-intensive industry built-up of foreign lessors and banks.
If airlines don't purchase loss of business insurance or insert force majeure clauses in their lease contracts, also called RISK MANAGEMENT, then they can save money and make more profit, but the risk is all theirs.


When the business community does a postmortem on the Covid-19 pandemic and lessons learned are written up, they’ll look closely at the role of risk management, and what they’ll likely find is a preference for financial performance over business resilience in the pre-pandemic period.

https://singularityhub.com/2020/04/24/t ... s-wanting/
 
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Terrier79
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Re: Re:

Mon Apr 27, 2020 6:52 am

Waterbomber2 wrote:
fraT wrote:
Waterbomber2 wrote:
Airlines can and should hence be able to mitigate 85% to 90% of their expenses.


Sorry to be that blunt but you have no idea what you are talking about.


With most of the fleet grounded, most staff in LH Group are on furlough, ie Kurzarbeit at 0%, and the payroll cost is virtually ZERO (except for Switzerland) for the airline.



Double wrong. First, it is incorrect to assume that most staff is working 0%. It depends strongly of the area of employment. While for cockpit/cabin crews, the average rate is below 10%, it is way higher in other functions, i.e. administration or maintenance. 2. Due to binding agreements between company and work councils, which were negotiated many years before a Corona crisis,, Lufthansa is forced to top up the income of their staff to 80% to 100% of the net income, depending on country and company. The payroll cost as a result of 1. and 2. is no where close to zero, but still more than 50% than normally. You can look up in the financial report how much that is each month. This is not only not a voluntary payment (contracts are binding), it is also politically expected by the Goverments that companies being on Kurzarbeit show corporate responsibility and still pay their fair share.


Waterbomber2 wrote:
Virtually because some small items like company pension schemes and insurance (hospital insurance, loss of license/medical insurance) schemes, car leases for management staff, may still be running, but those are tiny in proportion to the total payroll cost.


Again, the assumption that the payroll cost are so much down that they virtually do not matter any more is fake news..

Waterbomber2 wrote:
I don't know how it works in Switzerland but Belgium, Austria and Italy also have similar job retention programs.

https://www.cnbc.com/2020/04/03/kurzarb ... yoffs.html

Indeed, similar schemes, but also similar effects with top-ups.

Waterbomber2 wrote:
Kurzarbeit is already a huge subsidy that LH is receiving.


Sorry, but that's pure nonsense. Kurzarbeit is a mechanism that German (and Austrian, Swiss, Belgium) law offers. This is nothing that has been invented now as a response to the Corona crisis or as a subsidy specially for airlines. The money does not come from the taxpayer, it is taken from the social insurance every employer and employee pay every month 50:50. Each employee of Lufthansa has been paying hundreds of Euros each month over years and decades into the social insurance scheme (Arbeitslosenversicherung = "unemployment insurance"), and now it is unfortunately the time to receive a payback. This is how an insurance works. By the way, it is also one reason why labor cost are way more expensive in Germany that in many other countries, but you should not blame those willing to pay in insurance in good times, to benefit from that insurance in bad times.

Waterbomber2 wrote:
Note: Get your facts right before you tell other people that they don't know what they're talking about.

That was adressed to yourself, I guess?
 
fraT
Posts: 1174
Joined: Wed Oct 01, 2003 4:32 am

Re: Re:

Mon Apr 27, 2020 7:42 am

Waterbomber2 wrote:
fraT wrote:
Waterbomber2 wrote:
Airlines can and should hence be able to mitigate 85% to 90% of their expenses.


Sorry to be that blunt but you have no idea what you are talking about.
Such a number would only be possible by actually furloughing a similar number of employees. In Germany the government pays 60% respective 67% (when you have kids) of the net salary when the employee is down to 0% of the working time. If the employees work 40% or 60% then LH has to pay the salary for this amount of working time. Since LHG as most other legacy carriers tries to keep as many employees, the labor costs can't go down as much to reach your illusory numbers.
Yes, fuel burn is down but due to the hedging contracts, it is also not so much down as many think. Of course it is easy now to say that hedging is not that smart but it is always easy to say that now. I did not see anybody here talking negatively about hedging three months ago.
And as others have mentioned, costs related to aircraft leases, maintenance, parking space for aircraft and other stuff are not going away. LHG owns a higher percentage of their planes than most other airlines but still you would need to explain why leasing companies should accept the stop of payments or a lower amount of what was agreed to. They also have financial problems as many other businesses as well.

The only chance for airlines like LHG to come somewhere close to your numbers would be to fire the majority of the staff. Is that what you are suggesting?


With most of the fleet grounded, most staff in LH Group are on furlough, ie Kurzarbeit at 0%, and the payroll cost is virtually ZERO (except for Switzerland) for the airline.
Virtually because some small items like company pension schemes and insurance (hospital insurance, loss of license/medical insurance) schemes, car leases for management staff, may still be running, but those are tiny in proportion to the total payroll cost.

I don't know how it works in Switzerland but Belgium, Austria and Italy also have similar job retention programs.

https://www.cnbc.com/2020/04/03/kurzarb ... yoffs.html

Kurzarbeit is already a huge subsidy that LH is receiving.

Note: Get your facts right before you tell other people that they don't know what they're talking about.


Nothing to add to what Terrier79 wrote. You seem to have very little knowledge about the the short term working scheme (Kurzarbeit) in Germany and especially at LH. What differentiates LHG and most other legacies from many LCCs is that they are employing many of their employees in the respective home countries which is a lot more expensive than bringing them in from other European countries with much lower labor costs and worse insurance practices. There was a TV documentary about Ryanair employment practices in Germany a couple of months ago which was eye opening.
As Terrier79 mentioned, most LH group carriers are up-paying the short-term money from the government. Lauda is threatening their employees to replace them with cheaper employees from Eastern Europe and Ireland if they don't accept further cuts to the already lower salaries. But you seem to have a hate towards LH. That's fine but please stay with the facts.
 
Blerg
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 8:11 am

Slightly related to this topic but DUS is planning on firing 600 out of 2.300 of its employees as it expects 20% to 30% fewer flights in the coming months and years. I guess with AB gone and EW struggling, DUS is going through a rather turbulent period.

Source:
https://www.airliners.de/flughafen-dues ... -job/55044
 
RvA
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 8:26 am

A few months of kurzarbeit won’t help to mitigate the 3 years roughly they say it takes to get back to 2019 levels of revenue, passengers etc. Selling aircraft right now also surely isn’t easy so without support many airlines won’t be positioned well to recover optimally. I think this crisis has been a wake up call for many countries to ensure a robust domestic industry is in place. Airlines are vital so having your home airlines in the best shape possible is essential.
Airlines are btw not the only industries getting support in these times. I am surprised given the circumstances people are making a big deal about this. Especially on a forum with what you’d expect to be avgeeks.
 
tommy1808
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 9:56 am

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


The EU would need to approve it.

Best regards
Thomas
Well, there is prophecy in the bible after all: 2 Timothy 3:1-6
 
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seahawk
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 10:03 am

RvA wrote:
A few months of kurzarbeit won’t help to mitigate the 3 years roughly they say it takes to get back to 2019 levels of revenue, passengers etc. Selling aircraft right now also surely isn’t easy so without support many airlines won’t be positioned well to recover optimally. I think this crisis has been a wake up call for many countries to ensure a robust domestic industry is in place. Airlines are vital so having your home airlines in the best shape possible is essential.
Airlines are btw not the only industries getting support in these times. I am surprised given the circumstances people are making a big deal about this. Especially on a forum with what you’d expect to be avgeeks.


Again, always remember. 3 years means 3 years after the crisis ends, which is probably when a vaccine is found and has been given to most of the population of the world. So we can easily talk 5-6 years of crisis.
 
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Terrier79
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 11:48 am

seahawk wrote:
RvA wrote:
A few months of kurzarbeit won’t help to mitigate the 3 years roughly they say it takes to get back to 2019 levels of revenue, passengers etc.


Again, always remember. 3 years means 3 years after the crisis ends, which is probably when a vaccine is found and has been given to most of the population of the world. So we can easily talk 5-6 years of crisis.

No, 3 years means 3 years from now. 2023 back to pre-Corona levels. That’s what Lufthansa plans and communicates.
 
RvA
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 1:42 pm

seahawk wrote:
RvA wrote:
A few months of kurzarbeit won’t help to mitigate the 3 years roughly they say it takes to get back to 2019 levels of revenue, passengers etc. Selling aircraft right now also surely isn’t easy so without support many airlines won’t be positioned well to recover optimally. I think this crisis has been a wake up call for many countries to ensure a robust domestic industry is in place. Airlines are vital so having your home airlines in the best shape possible is essential.
Airlines are btw not the only industries getting support in these times. I am surprised given the circumstances people are making a big deal about this. Especially on a forum with what you’d expect to be avgeeks.


Again, always remember. 3 years means 3 years after the crisis ends, which is probably when a vaccine is found and has been given to most of the population of the world. So we can easily talk 5-6 years of crisis.


Might be, my 3 years are what Carsten Spohr is talking about right now. Which is 3 years from now.
 
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seahawk
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 2:22 pm

Terrier79 wrote:
seahawk wrote:
RvA wrote:
A few months of kurzarbeit won’t help to mitigate the 3 years roughly they say it takes to get back to 2019 levels of revenue, passengers etc.


Again, always remember. 3 years means 3 years after the crisis ends, which is probably when a vaccine is found and has been given to most of the population of the world. So we can easily talk 5-6 years of crisis.

No, 3 years means 3 years from now. 2023 back to pre-Corona levels. That’s what Lufthansa plans and communicates.


You are missing the "Ifs" in the communication.

50% traffic in Winter if travel restrictions are reduced
75% summer 2021 if there are no major travel restrictions
100% in 2023 if things happen in the predicted time frame.

The problem is that LH does not control the time frame, the virus and the governments do.
 
RvA
Posts: 380
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 3:38 pm

seahawk wrote:
Terrier79 wrote:
seahawk wrote:

Again, always remember. 3 years means 3 years after the crisis ends, which is probably when a vaccine is found and has been given to most of the population of the world. So we can easily talk 5-6 years of crisis.

No, 3 years means 3 years from now. 2023 back to pre-Corona levels. That’s what Lufthansa plans and communicates.


You are missing the "Ifs" in the communication.

50% traffic in Winter if travel restrictions are reduced
75% summer 2021 if there are no major travel restrictions
100% in 2023 if things happen in the predicted time frame.

The problem is that LH does not control the time frame, the virus and the governments do.


Yep could be either result.
Best case or worst case the govt support will be needed given the length time frames.
 
mxaxai
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Mon Apr 27, 2020 3:46 pm

tommy1808 wrote:
par13del wrote:
So no violation of any EU competitive rules?


The EU would need to approve it.

Best regards
Thomas

As laid out in the rules here: https://eur-lex.europa.eu/legal-content ... 4XC0731(01)
 
stylo777
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 5:46 am

State-aid fixed in principal: https://de.reuters.com/article/deutschl ... EKCN22A0K9

- agreed on 9 billion rescue package;
- blocking minority in return; and
- 1 or 2 seats in the supervisory board
 
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seahawk
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 6:32 am

And the industry is on the way back to the 1960ies, with government controlled national airlines.
 
Noshow
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 8:40 am

So bring back cheatlines please.
 
chonetsao
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 8:53 am

ewt340 wrote:
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.


I thought National Champion is for quasi-socialist country and communist country? (France and China comes to my mind)
 
ewt340
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 10:39 am

chonetsao wrote:
ewt340 wrote:
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.l

They gonna get extreme protections from the Government. Don't understand why some people surprised by this.


I thought National Champion is for quasi-socialist country and communist country? (France and China comes to my mind)


And the US, Japan, Germany, Canada, New Zealand, Singapore or any other countries with a Liberal-Conservative government who adopted corporate socialism in 21st century.

So this kind of bail out isn't too surprising. LH group is one of Germany's power tool, the fact that they dominate Europe should tell us that Germany's dominance lies in these major companies to sustain their economy.

Without them, they would just turn into Italy or Spain.
 
Waterbomber2
Topic Author
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 11:04 am

Pandora's box has been opened.
Now any country can participate in their favorite airline to whatever extent they deem suitable to sustain domestic jobs in a post-pandemic world.

Back to the 1960's indeed.
This will totally reshape the market.

The big players will be loaded with debt, new players will pop up all over the place, propulsed by state funds.

If you think about it, the competition rules benefited big players as they allowed to maintain a status quo and avoid competing with entire national budgets.

After this, LH, Germany or the EU can't say anything to any country or regional government wanting to prop up a national or even a foreign airline, because they will have to answer a tough question: How much susbsidies did Lufthansa get in 2020, just after announcing record revenues for the previous year?


TAP should ask for 20 billions, Iberia for 40 billions, AZ 50 billions.
 
mxaxai
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 12:15 pm

stylo777 wrote:
State-aid fixed in principal: https://de.reuters.com/article/deutschl ... EKCN22A0K9

- agreed on 9 billion rescue package;
- blocking minority in return; and
- 1 or 2 seats in the supervisory board

Lufthansa CEO Spohr not happy: https://www.tagesschau.de/wirtschaft/lu ... e-101.html
"We don't want politicians telling us whether to serve Osaka from Zurich or Munich."
- Doesn't want to surrender any control of company to politicians; especially not from multiple governments
- Would rather declare LH bankrupt (or Ch.11-style reorganisation with debt shedding) than accept the above terms
 
mxaxai
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 12:33 pm

Waterbomber2 wrote:
TAP should ask for 20 billions, Iberia for 40 billions, AZ 50 billions.

Sure, because an airline is totally worth spending 10 percent of your GDP on (~200 bln € for Portugal), without ever expecting to make a profit or repay loans. Face it, AZ has been in trouble since the 90s and no amount of government support has been able to fix their core issues; in fact the constant government influence has been one of the major contributing factors to their sorry state today. I think that this crisis is a perfect opportunity for some airlines (AF, AZ but also LH, BA and others) to get rid of many headaches. Whether they use it is up to them.
 
Blerg
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 12:42 pm

Wasn't SPD the most vocal about getting more government control over LH? I can see already regional politicians promising Lufthansa launching flights from their village airports if people vote for them.

On top of all that, Austrian government said that they are not rulling out investing in LH. This will be fun to watch.
 
Blerg
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 2:17 pm

According to this source, if the German government bailout plan happens not only would the government get a few seats at the board but they would also get the status of 'blocking minority.'
Lufthansa would also be supervised by the ministry of finance. No wonder Spohr would rather see it go into bankruptcy protection.

By the way, are we talking here about Lufthansa or Lufthansa Group?

Source:
https://www.airliners.de/bericht-luftha ... bund/55080
 
WorldFlier
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 2:28 pm

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


To paraphrase Star Wars,

Merkel - "I am the rules"|
 
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Executor
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 2:48 pm

Blerg wrote:
According to this source, if the German government bailout plan happens not only would the government get a few seats at the board but they would also get the status of 'blocking minority.'
Lufthansa would also be supervised by the ministry of finance. No wonder Spohr would rather see it go into bankruptcy protection.

By the way, are we talking here about Lufthansa or Lufthansa Group?

Source:
https://www.airliners.de/bericht-luftha ... bund/55080


You might have misunderstood the wording. "Blocking minority" means that you hold more than a certain amount of shares (usually a third of the total), allowing you to block some votes where a qualified majority (usually 2/3 of the voting shares) is required. Hence, by your (and multiple) articles, we can infer that the German government expects to hold at least a third of the capital in the future if this plan is accepted.

As for your question, there is no holding company in LH's capital structure (like AF-KLM or IAG). LH is both the operating company (for LH aircraft) AND the company owning most of its subsidiaries (incl. LX, OS, ...).
 
mxaxai
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 2:55 pm

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


To paraphrase Star Wars,

Merkel - "I am the rules"|

That's ridiculous:

1. The rules are agreed upon by all 28 (27) EU member states.
2. Germany is certainly not the no. 1 state to campaign against subsidies; the UK, Benelux and Scandinavian countries are (were) much more vocal when push comes to shove.
2. The rules have existed for many years.
3. While the EU commission is expediting decisions currently, the basic logic has not changed.
4. The rules make a clear distinction between continuous subsidies that distort the market and keep unviable companies alive, and one-time support to carry fundamentally healthy companies through a crisis.
5. It has been made very clear that any such crisis support cannot be a free handout and must be available to any applicants. These strings are one of the reasons why carriers like FR would rather not receive such aid.
 
Westerwaelder
Posts: 239
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 2:58 pm

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


To paraphrase Star Wars,

Merkel - "I am the rules"|

That's ridiculous:

1. The rules are agreed upon by all 28 (27) EU member states.
2. Germany is certainly not the no. 1 state to campaign against subsidies; the UK, Benelux and Scandinavian countries are (were) much more vocal when push comes to shove.
2. The rules have existed for many years.
3. While the EU commission is expediting decisions currently, the basic logic has not changed.
4. The rules make a clear distinction between continuous subsidies that distort the market and keep unviable companies alive, and one-time support to carry fundamentally healthy companies through a crisis.
5. It has been made very clear that any such crisis support cannot be a free handout and must be available to any applicants. These strings are one of the reasons why carriers like FR would rather not receive such aid.


Thank you. Finally someone putting this right.
 
Waterbomber2
Topic Author
Posts: 1288
Joined: Mon Feb 04, 2019 3:44 am

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

Tue Apr 28, 2020 3:04 pm

Blerg wrote:
According to this source, if the German government bailout plan happens not only would the government get a few seats at the board but they would also get the status of 'blocking minority.'
Lufthansa would also be supervised by the ministry of finance. No wonder Spohr would rather see it go into bankruptcy protection.

By the way, are we talking here about Lufthansa or Lufthansa Group?

Source:
https://www.airliners.de/bericht-luftha ... bund/55080



I think that Mr. Spohr reads airliners.net and realised what would happen if they format the aid like this.
To reiterate:

After this, LH, Germany or the EU can't say anything to any country or regional government wanting to prop up a national or even a foreign airline, because they will have to answer a tough question: How much susbsidies did Lufthansa get in 2020, just after announcing record revenues for the previous year?

TAP should ask for 20 billions, Iberia for 40 billions, AZ 50 billions.


-----------------------------------------------------------------------------------------------------------------------------------

mxaxai wrote:
Waterbomber2 wrote:
TAP should ask for 20 billions, Iberia for 40 billions, AZ 50 billions.

Sure, because an airline is totally worth spending 10 percent of your GDP on (~200 bln € for Portugal), without ever expecting to make a profit or repay loans. Face it, AZ has been in trouble since the 90s and no amount of government support has been able to fix their core issues; in fact the constant government influence has been one of the major contributing factors to their sorry state today. I think that this crisis is a perfect opportunity for some airlines (AF, AZ but also LH, BA and others) to get rid of many headaches. Whether they use it is up to them.


With 50 billions, they can rebuild a jewel of an airline.
It doesn't need to be profitable, its only goal would be: "all flights lead to Rome".

Lufthansa can kiss its empire goodbye, the Romans are back.
 
WorldFlier
Posts: 385
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 3:08 pm

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


To paraphrase Star Wars,

Merkel - "I am the rules"|

That's ridiculous:

1. The rules are agreed upon by all 28 (27) EU member states.
2. Germany is certainly not the no. 1 state to campaign against subsidies; the UK, Benelux and Scandinavian countries are (were) much more vocal when push comes to shove.
2. The rules have existed for many years.
3. While the EU commission is expediting decisions currently, the basic logic has not changed.
4. The rules make a clear distinction between continuous subsidies that distort the market and keep unviable companies alive, and one-time support to carry fundamentally healthy companies through a crisis.
5. It has been made very clear that any such crisis support cannot be a free handout and must be available to any applicants. These strings are one of the reasons why carriers like FR would rather not receive such aid.


Let me know what other German carriers will receive the bailout and which other European carriers will receive as big of a bailout. Keep repeating those talking points, but if you look at who gets bailed out and who doesn't you will clearly see German companies (and de-facto SOEs/National Champions) being favored.

Two reasons FR won't get bailed out, Ireland can't afford it nor does Ryanair need it (their balance sheet is the envy of the industry)...but LH immediately needs money given to it - the shareholders should return their dividends and buybacks before the state should bail them out!

One month of pain and the company is on the verge of bankruptcy. Where is the "rainy day fund" that some people say that individuals should have? Where is the corporate responsibility. Shareholders should be punished and not rewarded for robbing the piggy blind during a good decade with no cushion.
 
mxaxai
Posts: 1885
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 3:39 pm

WorldFlier wrote:
Let me know what other German carriers will receive the bailout and which other European carriers will receive as big of a bailout...

Let's see ...
DE
AF
KL
AZ
TP
SK
DY
VS
U2
W6
Tui group (all airlines)
BT
LO
Feel free to add your favorite airline to it; almost everybody is asking for support one way or another.

The reason why many 'national champions' (per your words) get large sums is (a) they're simply large to begin with and (b) many countries lost medium-sized airlines in the past decade, e. g. AB, AP, BE, TC, UN, JK, ... with traffic taken over by the large hubs or LCC's. You can see the same consolidation all over the world, even in the US where all airlines are created equal.
 
Waterbomber2
Topic Author
Posts: 1288
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Re: Lufthansa 10+ Billion EUR package: bailout or megasubsidy?

Tue Apr 28, 2020 3:52 pm

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


To paraphrase Star Wars,

Merkel - "I am the rules"|

That's ridiculous:

1. The rules are agreed upon by all 28 (27) EU member states.
2. Germany is certainly not the no. 1 state to campaign against subsidies; the UK, Benelux and Scandinavian countries are (were) much more vocal when push comes to shove.
2. The rules have existed for many years.
3. While the EU commission is expediting decisions currently, the basic logic has not changed.
4. The rules make a clear distinction between continuous subsidies that distort the market and keep unviable companies alive, and one-time support to carry fundamentally healthy companies through a crisis.
5. It has been made very clear that any such crisis support cannot be a free handout and must be available to any applicants. These strings are one of the reasons why carriers like FR would rather not receive such aid.



It's not ridiculous because of many issues:

-There is no evidence that LH needs 9 billion EUR after years of big profits. Plenty of assets to sell, there is even demand for their shares. Have they tried borrowing on the open market?
-Mismanagement of company liquidity points to a structural problem: ie management that is too focussed on distributing earnings to shareholders instead of shoring up company liquidity. Solvency is just as important as profitability and it seems that LH had no problems distributing its cash while keeping only proceeds from advance payment of tickets as liquidity.

The EU state aid rule sets forth limitations that this package can't meet:

This:
43. The amount and intensity of the aid must be limited to
the strict minimum of the restructuring costs necessary
to enable restructuring to be undertaken in the light of
the existing financial resources of the company, its shareholders or the business group to which it belongs. Such
assessment will take account of any rescue aid granted
beforehand. Aid beneficiaries will be expected to make a
significant contribution to the restructuring plan from
their own resources, including the sale of assets that are
not essential to the firm's survival, or from external financing at market conditions. Such contribution is a sign
that the markets believe in the feasibility of the return to
viability. Such contribution must be real, i.e., actual,
excluding all future expected profits such as cash flow,
and must be as high as possible.


or this:
In any event, a firm in difficulty is eligible only where,
demonstrably, it cannot recover through its own
resources or with the funds it obtains from its owners/
shareholders or from market sources.


https://eur-lex.europa.eu/legal-content ... 4XC1001(01)&from=EN


Lufthansa can recover by their own means.
They can sell vouchers for future bookings at 30% discount for instance, ie passengers extend a loan.
They can ask for commercial loans even if they have to pay higher interest rates.
They can issue shares, the company is currently valued at over 3 billions market capitalisation.
They can issue debt notes.
They can sell owned aircraft that have higher value than the collateral they are covering or sell and leaseback.
They can sell buildings, cars, equipment, subsidiaries like LH Technik, LH Cargo, its shares in Aerologic, etc...

Once all of those options are exhausted, and their money is really finished, they can ask for 3 billions.
If they're burning 1 million per hour, that should last them 6 months.


I really think that they should declare insolvency if they want the 9 billions, because otherwise everyone and anyone will be doing arbitrary things and there will be no control.

My understanding is that the 9 billion is only for LH Passage and other German subsidiaries.
Last edited by Waterbomber2 on Tue Apr 28, 2020 3:55 pm, edited 1 time in total.
 
Westerwaelder
Posts: 239
Joined: Fri Apr 03, 2020 12:27 pm

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

Tue Apr 28, 2020 3:53 pm

WorldFlier wrote:
mxaxai wrote:
WorldFlier wrote:

To paraphrase Star Wars,

Merkel - "I am the rules"|

That's ridiculous:

1. The rules are agreed upon by all 28 (27) EU member states.
2. Germany is certainly not the no. 1 state to campaign against subsidies; the UK, Benelux and Scandinavian countries are (were) much more vocal when push comes to shove.
2. The rules have existed for many years.
3. While the EU commission is expediting decisions currently, the basic logic has not changed.
4. The rules make a clear distinction between continuous subsidies that distort the market and keep unviable companies alive, and one-time support to carry fundamentally healthy companies through a crisis.
5. It has been made very clear that any such crisis support cannot be a free handout and must be available to any applicants. These strings are one of the reasons why carriers like FR would rather not receive such aid.


Let me know what other German carriers will receive the bailout and which other European carriers will receive as big of a bailout. Keep repeating those talking points, but if you look at who gets bailed out and who doesn't you will clearly see German companies (and de-facto SOEs/National Champions) being favored.

Two reasons FR won't get bailed out, Ireland can't afford it nor does Ryanair need it (their balance sheet is the envy of the industry)...but LH immediately needs money given to it - the shareholders should return their dividends and buybacks before the state should bail them out!

One month of pain and the company is on the verge of bankruptcy. Where is the "rainy day fund" that some people say that individuals should have? Where is the corporate responsibility. Shareholders should be punished and not rewarded for robbing the piggy blind during a good decade with no cushion.


Condor is being rescued (again) by the German Government.

AF/KL are receiving a similar amount to LH from their governments.

AZ - not sure where to start

SAS is bailed out by the governments of Sweden and Denmark

SN, OS and LX recall being saved by their respective governments as part of the LH rescue

Ryanair does not get a bailout because they can manage so far.

Not many governments will let their main airline go bust if they can help it (South Africa might but they have 50% of all companies say they will not survive and are struggling financially themselves). 130,000 jobs in the LH group are a lot to deal with. And it was a healthy business before Covid.
 
Westerwaelder
Posts: 239
Joined: Fri Apr 03, 2020 12:27 pm

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

Tue Apr 28, 2020 3:56 pm

Waterbomber2 wrote:
mxaxai wrote:
WorldFlier wrote:

To paraphrase Star Wars,

Merkel - "I am the rules"|

That's ridiculous:

1. The rules are agreed upon by all 28 (27) EU member states.
2. Germany is certainly not the no. 1 state to campaign against subsidies; the UK, Benelux and Scandinavian countries are (were) much more vocal when push comes to shove.
2. The rules have existed for many years.
3. While the EU commission is expediting decisions currently, the basic logic has not changed.
4. The rules make a clear distinction between continuous subsidies that distort the market and keep unviable companies alive, and one-time support to carry fundamentally healthy companies through a crisis.
5. It has been made very clear that any such crisis support cannot be a free handout and must be available to any applicants. These strings are one of the reasons why carriers like FR would rather not receive such aid.



It's not ridiculous because of many issues:

-There is no evidence that LH needs 9 billion EUR after years of big profits. Plenty of assets to sell, there is even demand for their shares. Have they tried borrowing on the open market?
-Mismanagement of company liquidity points to a structural problem: ie management that is too focussed on distributing earnings to shareholders instead of shoring up company liquidity. Solvency is just as important as profitability and it seems that LH had no problems distributing its cash while keeping only proceeds from advance payment of tickets as liquidity.

The EU state aid rule sets forth limitations that this package can't meet:

This:
43. The amount and intensity of the aid must be limited to
the strict minimum of the restructuring costs necessary
to enable restructuring to be undertaken in the light of
the existing financial resources of the company, its shareholders or the business group to which it belongs. Such
assessment will take account of any rescue aid granted
beforehand. Aid beneficiaries will be expected to make a
significant contribution to the restructuring plan from
their own resources, including the sale of assets that are
not essential to the firm's survival, or from external financing at market conditions. Such contribution is a sign
that the markets believe in the feasibility of the return to
viability. Such contribution must be real, i.e., actual,
excluding all future expected profits such as cash flow,
and must be as high as possible.


or this:
In any event, a firm in difficulty is eligible only where,
demonstrably, it cannot recover through its own
resources or with the funds it obtains from its owners/
shareholders or from market sources.


https://eur-lex.europa.eu/legal-content ... 4XC1001(01)&from=EN


Lufthansa can recover by their own means.
They can sell vouchers for future bookings at 30% discount for instance, ie passengers extend a loan.
They can ask for commercial loans even if they have to pay higher interest rates.
They can issue shares, the company is currently valued at over 3 billions market capitalisation.
They can issue debt notes.
They can sell owned aircraft that have higher value than the collateral they are covering or sell and leaseback.
They can sell buildings, cars, equipment, subsidiaries like LH Technik, LH Cargo, its shares in Aerologic, etc...

Once all of those options are exhausted, and their money is really finished, they can ask for 3 billions.
If they're burning 1 million per hour, that should last them 6 months.


I really think that they should declare insolvency if they want the 9 billions, because otherwise everyone and anyone will be doing arbitrary things and there will be no control.


The current figure circulating as interest demanded by the government (unconfirmed I add) is 9% plus 2 to 3 seats on the board. If LH could borrow enough in the financial markets they would.

How do you know it's an arbitrary amount they are asking for. Have you seen their books?
 
Blerg
Posts: 4059
Joined: Tue Jan 09, 2018 11:42 am

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

Tue Apr 28, 2020 4:05 pm

Westerwaelder wrote:
Waterbomber2 wrote:
mxaxai wrote:
That's ridiculous:

1. The rules are agreed upon by all 28 (27) EU member states.
2. Germany is certainly not the no. 1 state to campaign against subsidies; the UK, Benelux and Scandinavian countries are (were) much more vocal when push comes to shove.
2. The rules have existed for many years.
3. While the EU commission is expediting decisions currently, the basic logic has not changed.
4. The rules make a clear distinction between continuous subsidies that distort the market and keep unviable companies alive, and one-time support to carry fundamentally healthy companies through a crisis.
5. It has been made very clear that any such crisis support cannot be a free handout and must be available to any applicants. These strings are one of the reasons why carriers like FR would rather not receive such aid.



It's not ridiculous because of many issues:

-There is no evidence that LH needs 9 billion EUR after years of big profits. Plenty of assets to sell, there is even demand for their shares. Have they tried borrowing on the open market?
-Mismanagement of company liquidity points to a structural problem: ie management that is too focussed on distributing earnings to shareholders instead of shoring up company liquidity. Solvency is just as important as profitability and it seems that LH had no problems distributing its cash while keeping only proceeds from advance payment of tickets as liquidity.

The EU state aid rule sets forth limitations that this package can't meet:

This:
43. The amount and intensity of the aid must be limited to
the strict minimum of the restructuring costs necessary
to enable restructuring to be undertaken in the light of
the existing financial resources of the company, its shareholders or the business group to which it belongs. Such
assessment will take account of any rescue aid granted
beforehand. Aid beneficiaries will be expected to make a
significant contribution to the restructuring plan from
their own resources, including the sale of assets that are
not essential to the firm's survival, or from external financing at market conditions. Such contribution is a sign
that the markets believe in the feasibility of the return to
viability. Such contribution must be real, i.e., actual,
excluding all future expected profits such as cash flow,
and must be as high as possible.


or this:
In any event, a firm in difficulty is eligible only where,
demonstrably, it cannot recover through its own
resources or with the funds it obtains from its owners/
shareholders or from market sources.


https://eur-lex.europa.eu/legal-content ... 4XC1001(01)&from=EN


Lufthansa can recover by their own means.
They can sell vouchers for future bookings at 30% discount for instance, ie passengers extend a loan.
They can ask for commercial loans even if they have to pay higher interest rates.
They can issue shares, the company is currently valued at over 3 billions market capitalisation.
They can issue debt notes.
They can sell owned aircraft that have higher value than the collateral they are covering or sell and leaseback.
They can sell buildings, cars, equipment, subsidiaries like LH Technik, LH Cargo, its shares in Aerologic, etc...

Once all of those options are exhausted, and their money is really finished, they can ask for 3 billions.
If they're burning 1 million per hour, that should last them 6 months.


I really think that they should declare insolvency if they want the 9 billions, because otherwise everyone and anyone will be doing arbitrary things and there will be no control.


The current figure circulating as interest demanded by the government (unconfirmed I add) is 9% plus 2 to 3 seats on the board. If LH could borrow enough in the financial markets they would.

How do you know it's an arbitrary amount they are asking for. Have you seen their books?


According to sources German government is also asking for veto rights despite being a minority shareholder. They also want to put LH under ministry of finance as a government dependent business. If all that is true then German government would have total control of the airline. Now we see why the Austrian government isn't ruling out an investment in LH as well. Maybe we will finally see LH Group transform itself into an German-Austrian joint venture, governments will most likely Anschluss LH in the end.

If this happens then we will have to see what the Belgians and the Swiss do.
 
Blerg
Posts: 4059
Joined: Tue Jan 09, 2018 11:42 am

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

Tue Apr 28, 2020 4:13 pm

Seems like today Lufthansa rejected government's aid and is considering filing for bankruptcy. It would be put under supervision during which it could undertake the necessary measures to stabilize its business and to reform itself.

https://www.faz.net/aktuell/wirtschaft/ ... 45533.html
 
oldJoe
Posts: 187
Joined: Fri Jan 10, 2020 11:04 pm

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

Tue Apr 28, 2020 4:18 pm

Waterbomber2 wrote:
Blerg wrote:
According to this source, if the German government bailout plan happens not only would the government get a few seats at the board but they would also get the status of 'blocking minority.'
Lufthansa would also be supervised by the ministry of finance. No wonder Spohr would rather see it go into bankruptcy protection.

By the way, are we talking here about Lufthansa or Lufthansa Group?

Source:
https://www.airliners.de/bericht-luftha ... bund/55080



I think that Mr. Spohr reads airliners.net and realised what would happen if they format the aid like this.
To reiterate:

After this, LH, Germany or the EU can't say anything to any country or regional government wanting to prop up a national or even a foreign airline, because they will have to answer a tough question: How much susbsidies did Lufthansa get in 2020, just after announcing record revenues for the previous year?

TAP should ask for 20 billions, Iberia for 40 billions, AZ 50 billions.


-----------------------------------------------------------------------------------------------------------------------------------

mxaxai wrote:
Waterbomber2 wrote:
TAP should ask for 20 billions, Iberia for 40 billions, AZ 50 billions.

Sure, because an airline is totally worth spending 10 percent of your GDP on (~200 bln € for Portugal), without ever expecting to make a profit or repay loans. Face it, AZ has been in trouble since the 90s and no amount of government support has been able to fix their core issues; in fact the constant government influence has been one of the major contributing factors to their sorry state today. I think that this crisis is a perfect opportunity for some airlines (AF, AZ but also LH, BA and others) to get rid of many headaches. Whether they use it is up to them.


With 50 billions, they can rebuild a jewel of an airline.
It doesn't need to be profitable, its only goal would be: "all flights lead to Rome".

Lufthansa can kiss its empire goodbye, the Romans are back.


Italy has the highest debt of all European Countries. 50 bln would mean ~ 25% of their GDB ! Noway the gov could afford it.
For what they are still investing in a long time clapped-out airline , I don`t know. Dream on !
 
oldJoe
Posts: 187
Joined: Fri Jan 10, 2020 11:04 pm

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

Tue Apr 28, 2020 4:32 pm

Blerg wrote:
Seems like today Lufthansa rejected government's aid and is considering filing for bankruptcy. It would be put under supervision during which it could undertake the necessary measures to stabilize its business and to reform itself.

https://www.faz.net/aktuell/wirtschaft/ ... 45533.html


They did not reject the aid. C. Spohr don`t like the conditions and therefore he brings up bankrupcy. He set up pressure to the government with this step.
Think about layoffs. The Germanwings staff he would like to keep but not in bankrupcy. LH finances aircraft via KfW .....etc
So he gives the government the chance to think about the two choices
 
MIflyer12
Posts: 8043
Joined: Mon Feb 18, 2013 11:58 pm

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

Tue Apr 28, 2020 4:49 pm

Does this form of reorganization exist under German law today?

The company source said that the type of creditor protection scheme under consideration would require the company to be still solvent and where management could stay on to oversee a restructuring.


https://www.reuters.com/article/us-heal ... SKCN22A0IU

Are there examples of big AGs using this in the last decade?
 
Blerg
Posts: 4059
Joined: Tue Jan 09, 2018 11:42 am

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

Tue Apr 28, 2020 4:59 pm

oldJoe wrote:
Blerg wrote:
Seems like today Lufthansa rejected government's aid and is considering filing for bankruptcy. It would be put under supervision during which it could undertake the necessary measures to stabilize its business and to reform itself.

https://www.faz.net/aktuell/wirtschaft/ ... 45533.html


They did not reject the aid. C. Spohr don`t like the conditions and therefore he brings up bankrupcy. He set up pressure to the government with this step.
Think about layoffs. The Germanwings staff he would like to keep but not in bankrupcy. LH finances aircraft via KfW .....etc
So he gives the government the chance to think about the two choices


I don't speak German so I used Google Translate, I guess something was lost in translation. However I am surprised the government is going so aggressively after LH. Why is that?
 
Westerwaelder
Posts: 239
Joined: Fri Apr 03, 2020 12:27 pm

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

Tue Apr 28, 2020 5:06 pm

MIflyer12 wrote:
Does this form of reorganization exist under German law today?

The company source said that the type of creditor protection scheme under consideration would require the company to be still solvent and where management could stay on to oversee a restructuring.


https://www.reuters.com/article/us-heal ... SKCN22A0IU

Are there examples of big AGs using this in the last decade?

I think they are referring to the "Schutzschirmverfahren". It is what was used for Condor. Key criteria are liquidity and the prospect of becoming a successful business again. It allows the current management to continue. It isn't used very often when compared to straight forward insolvency as it needs to happen while the company still has got some money.
 
Westerwaelder
Posts: 239
Joined: Fri Apr 03, 2020 12:27 pm

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

Tue Apr 28, 2020 5:10 pm

Blerg wrote:
oldJoe wrote:
Blerg wrote:
Seems like today Lufthansa rejected government's aid and is considering filing for bankruptcy. It would be put under supervision during which it could undertake the necessary measures to stabilize its business and to reform itself.

https://www.faz.net/aktuell/wirtschaft/ ... 45533.html


They did not reject the aid. C. Spohr don`t like the conditions and therefore he brings up bankrupcy. He set up pressure to the government with this step.
Think about layoffs. The Germanwings staff he would like to keep but not in bankrupcy. LH finances aircraft via KfW .....etc
So he gives the government the chance to think about the two choices


I don't speak German so I used Google Translate, I guess something was lost in translation. However I am surprised the government is going so aggressively after LH. Why is that?


There is pressure within the coalition government to ensure LH is not getting something for nothing. €10b is a lot of money and the government wants to ensure it's used in the best interest of the country. They want to hold LH accountable for how they spend taxpayers' money. Seems fair enough. They should not be able to meddle in route decisions (the picture painted by the LH CEO) but being able to keeping an eye on the company feels reasonable.
 
oldJoe
Posts: 187
Joined: Fri Jan 10, 2020 11:04 pm

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

Tue Apr 28, 2020 5:11 pm

MIflyer12 wrote:
Does this form of reorganization exist under German law today?

The company source said that the type of creditor protection scheme under consideration would require the company to be still solvent and where management could stay on to oversee a restructuring.


https://www.reuters.com/article/us-heal ... SKCN22A0IU

Are there examples of big AGs using this in the last decade?


Actually Condor is on that road
 
fraT
Posts: 1174
Joined: Wed Oct 01, 2003 4:32 am

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

Tue Apr 28, 2020 5:38 pm

Westerwaelder wrote:
Blerg wrote:
oldJoe wrote:

They did not reject the aid. C. Spohr don`t like the conditions and therefore he brings up bankrupcy. He set up pressure to the government with this step.
Think about layoffs. The Germanwings staff he would like to keep but not in bankrupcy. LH finances aircraft via KfW .....etc
So he gives the government the chance to think about the two choices


I don't speak German so I used Google Translate, I guess something was lost in translation. However I am surprised the government is going so aggressively after LH. Why is that?


There is pressure within the coalition government to ensure LH is not getting something for nothing. €10b is a lot of money and the government wants to ensure it's used in the best interest of the country. They want to hold LH accountable for how they spend taxpayers' money. Seems fair enough. They should not be able to meddle in route decisions (the picture painted by the LH CEO) but being able to keeping an eye on the company feels reasonable.


The problem is that the coalition government is very much divided in regards to LH. The Social Democrats want the maximum control (officially in order to save as many jobs as possible). The conservatives want to give the LH management more space to to do what they think is necessary. And some unions are spreading wrong information in order to influence towards the first possibility.
In the end there will most probably a middle way, something Mrs Merkel is known for.

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