(Bloomberg) — Germany’s 9 billion-euro ($9.8 billion) bailout of Deutsche Lufthansa AG has stalled on last-minute talks to ensure swift approval from the European Union, according to people familiar with the matter.
A timetable for the German government to sell an eventual stake in Lufthansa is one of the details that still needs to be ironed out, said one of the people, who asked not to be identified because the talks are confidential. Issues have also arisen about the pace of repaying the aid.
Lufthansa would face a three-year deadline for paying back the bailout package, implying a faster rate than the one flagged by the company, Bild am Sonntag reported on Sunday. Chief Executive Officer Carsten Spohr has previously said Europe’s largest airline is expected to repay as much as 1 billion euros a year.
The outlines of the rescue deal came together last week as urgency intensified amid the collapse in travel demand because of coronavirus restrictions. Under the plan, Chancellor Angela Merkel’s administration would become the largest shareholder in the airline. The government had aimed to issue a formal offer to the airline this weekend but talks between Germany, Lufthansa and the European Commission are holding up the plan, the person added.
Lufthansa shares were up 1.8% at 8.18 euros at 9:26 a.m. in Frankfurt trading. The stock has halved since the start of the year, valuing the company at 3.9 billion euros.
The German aid package would include a 20% direct government stake in Lufthansa, a convertible bond equivalent to a 5% plus one share and a 3 billion-euro loan from state development bank KfW.
There’s also plans for a so-called silent participation — a debt-equity hybrid instrument that wouldn’t dilute shareholder voting rights.
The downside for the recipient is these have relatively high guaranteed dividends. For the creditor, the risk comes from the fact they don’t get voting rights or potential upside from share gains. But in the Lufthansa deal, the German state’s direct holding is for stock with a nominal price of 2.56 euros, a level that all but guarantees a taxpayer profit if the state props up the airline.
The parties are also discussing a capital-cut option that would see Lufthansa issue shares below that price, Lufthansa said in a statement last week.
Under EU state-aid guidelines loosened this month to help alleviate the economic damage of the coronavirus crisis, member states should scale down stakes they buy in listed companies within six years. The EU’s competition unit also banned payouts like dividends and bonuses for top executives, while barring companies from taking more than a 10% stake in rivals, suppliers or customers.
German Economy Minister Peter Altmaier said in an interview on Saturday that an exit strategy must be part of the plan. Lufthansa is also poised to receive assistance from Switzerland, Austria and Belgium, where it owns units.
Governments can set stricter conditions on aid to limit potential harm to rivals who don’t get similar help. Ryanair Holdings Plc has already challenged the bailout of Air France-KLM and vowed to do the same with Lufthansa, complaining that the German flag-carrier would exit the crisis stronger while lower-cost airlines that don’t get aid will compete “with two hands tied behind our back.”
The German government declined to comment, as did a spokeswoman for Lufthansa.
The European Commission declined to comment, referring to an earlier statement that regulators were in constant contact with national governments and were “very well aware of the difficult situation that the aviation sector is facing due to the coronavirus outbreak.”
But the commission has also warned in recent weeks of growing divergence within Europe as Germany accounts for more than half the 1.95 trillion euros in Covid-19 state aid approved by EU regulators.
(Updates with share trading in fifth paragrpah)
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