April 28, 2020 / 5:21 AM / in a month

Lufthansa may seek creditor protection alongside Berlin rescue talks

BERLIN/VIENNA (Reuters) - Lufthansa might seek some form of protection from creditors while talking to the Berlin government about a 9 billion euro ($9.76 billion) rescue package, a company source said on Tuesday after government and airline sources said talks on a deal were continuing.

The company source said the type of creditor protection under consideration would require the company to be still solvent, with management staying on to oversee a restructuring.

Lufthansa, which like many other international carriers was forced to ground nearly all its flights due to the coronavirus, declined to comment.

The German flagship carrier’s shares had risen as much as 12.1% earlier on Tuesday, which traders attributed to prospects of a rescue deal being close. They closed 2% higher at 8.09 euros.

The stock was also supported by the reported size of a rescue package, which met with some expectations, traders said.

Lufthansa and the economy ministry declined to comment after news outlet Business Insider cited company sources as saying Berlin would help in return for a blocking minority and one or two supervisory board mandates.

The question of state influence in the management of the company is a tricky one for Germany’s coalition government. A government source said talks would continue but gave no timing.

Germany’s conservative government wants to leave Lufthansa’s management relatively free of intervention, while the Social Democrats (SPD) want the state to share ownership in order to influence decision-making to protect employees.

FILE PHOTO: Two Lufthansa airbus A380-800 are parked as air traffic is affected by the spread of the coronavirus disease (COVID-19), in Frankfurt, Germany, March 23, 2020. Arne Dedert/Pool via REUTERS/File Photo

Unions representing pilots, crews and ground staff demand job guarantees if tax payer money flows.

Lufthansa has subsidiaries in Austria, Switzerland and Belgium and its two German hubs, Frankfurt and Munich, are located in the state of Hesse and Bavaria.

Lufthansa’s Austrian unit AUA said late on Tuesday that it had applied for state aid of 767 million euros, of which a large part should be repayable loans and the remainder grants. These grants were still under negotiation, an AUA spokesman said.

The Austrian government has repeatedly said it would require job guarantees and an assurance that Vienna will remain a transfer hub in return for financial support.

Lufthansa has issued stark warnings about its solvency amid a gloomy outlook after the coronavirus crisis grounded almost all its planes.

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CEO Carsten Spohr this month cited cash burn at a rate of 1 million euros per hour, meaning the airline’s 4 billion euro cash reserves will be inadequate.

Lufthansa currently transports only 1% of passengers compared with a year ago. Some 100 aircraft of its 760-strong fleet could be idled and 10,000 jobs are in danger, Spohr said last week.

Some rival airlines in Europe and in the United States have secured government help, but others have said they aim to manage without it.

Spohr assured Belgian Prime Minister Sophie Wilmès in a letter seen by a broadcaster he has no plans to sell Belgian unit Brussels Airline.

Reporting by Michelle Martin, Christian Kraemer, Ilona Wissenbach, Andreas Rinke, Holger Hansen, Alexander Huebner, Alexandra Schwarz-Goerlich, writing by Vera Eckert in Frankfurt and Kirsti Knolle in Vienna; editing by Thomas Seythal/Jason Neely/Jane Merriman/Sabine Wollrab/Arno Schuetze/Dan Grebler

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