Loss of landing rights: Lufthansa accepts EU requirements

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The EU gives the green light for the federal government’s Lufthansa rescue package – but the airline has to swallow a toad: it has to give up landing rights in Frankfurt and Munich. The Lufthansa board agrees, but that is not the end of the story.

The severely battered Lufthansa wants to accept conditions from the EU Commission for the planned government bailout package worth billions. As the group announced last night, the board has decided to accept a compromise previously negotiated between Berlin and Brussels. Accordingly, Lufthansa has to hand over take-off and landing rights to competitors at Frankfurt and Munich airports. This means that an important hurdle for state aid with a planned federal participation in Lufthansa has been overcome. The German government wants to support the battered airline, which came under pressure in the Corona crisis, with a nine-billion-euro aid package. Otherwise, Lufthansa threatens to run out of money.

According to the airline, the scope of the commitments required by the EU Commission has been reduced compared to initial plans. The company is therefore obliged to transfer up to four aircraft to each of the competitors at Frankfurt and Munich airports. This corresponds to up to 24 take-off and landing rights, so-called slots. This is arithmetically three take-off and three landing rights per aircraft and day. This option was only available to new competitors at Frankfurt and Munich airports for at least a year and a half. If no new competitor makes use of the option, the option will also be extended to existing competitors at the respective airports.

Not in dry cloths yet

The slots are to be allocated as part of a bidding process – and only to be taken over by a European competitor who has not received any significant state recapitalization due to the corona pandemic. This could benefit the Irish low-cost airline Ryanair, for example, which wants to get through the crisis without state aid and has heavily criticized the planned entry of the German state into Lufthansa. Ryanair currently flies to Germany’s largest airport, Frankfurt, but is not yet represented in Munich. Conversely, the British low-cost airline Easyjet offers flights from Munich, but has only just withdrawn from Frankfurt.

The Lufthansa Supervisory Board now has to approve the rescue package including the EU requirements. The company then plans to convene an extraordinary general meeting promptly to obtain shareholder approval for the package. The Ministry of Economic Affairs also points out that the agreement is not yet dry: “Incidentally, the talks with the EU Commission on state aid approval are ongoing,” said a statement early Saturday morning. But: “With the intermediate step now achieved, the way is cleared for referral to the Annual General Meeting.”

Ryanair complains of distortion of competition

This was preceded by difficult negotiations between the Federal Government and the EU Commission, which had to agree to the rescue package. According to the “Handelsblatt”, the EU Commission initially requested the delivery of 20 jets. Lufthansa had offered to sell 3 aircraft, but the EU Commission had refused to do so. The Lufthansa Supervisory Board had warned that if the circulation was too high, the hub function at the home airports in Frankfurt and Munich would be weakened. Negotiations have not yet ended with the compromise. Brussels still has to agree to the package. The federal government has to notify it.

The responsible Vice President of the EU Commission, Margrethe Vestager, defended the Commission’s request for conditions on Friday. It is not about creating additional obstacles, but about preventing distortions of competition. Vestager explained that the EU Commission is asking Lufthansa to hand over take-off and landing rights in return for state aid, with the importance of slots for competition. “If you want to compete with them, you need slots at an airport,” said the Danish.

The low-cost airline Ryanair had complained of a massive distortion of competition. The billion dollar aid from the German government would further strengthen Lufthansa’s monopoly-like access to the German aviation market, criticized the Irish airline. Ryanair chief Michael O’Leary had announced that he would take action against the state aid.

Entry into economic stabilization funds necessary

An extraordinary general meeting of Lufthansa still has to vote on capital measures that enable the state economic stabilization fund to enter – the federal government had decided in the Corona crisis in order to be able to participate in important companies if necessary. Chancellor Angela Merkel (CDU) had announced a “tough fight” in the CDU presidium on Monday, according to participants, because Brussels only wanted to approve the multi-billion dollar rescue under high conditions.

The rescue plan for Lufthansa provides that the state economic stabilization fund will subscribe to shares in the course of a capital increase in order to build up a 20 percent stake in the airline’s share capital. In addition, silent deposits totaling up to EUR 5.7 billion and a loan of up to EUR 3 billion are planned. Aid is needed for Lufthansa because the corona pandemic has brought the company’s business, with the exception of freight, to a standstill with the following travel restrictions. As a result, tens of thousands of jobs are on the verge in the group with around 138,000 employees.

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