Berlin takes the controls at Lufthansa in €9B
bailout
The largest aviation rescue in Europe is going to have
to be approved by Brussels.
By JOSHUA
POSANER 5/25/20, 9:14 PM CET Updated 5/26/20, 4:51 AM CET
BERLIN —
Good evening ladies and gentlemen, this is your captain speaking ... the German
federal government.
Berlin
agreed to a €9 billion deal on Monday to save flag carrier Lufthansa, turning
the German government into the single largest shareholder in Europe's
second-largest airline as it looks to restart flights next month following
weeks of lockdown.
Underscoring
the trouble facing airlines, Lufthansa’s current market capitalization is less
than the size of the bailout. But as a strategic asset for an export nation,
keeping its flag carrier flying is a no-brainer in Berlin with broad political
support, despite some concerns from the opposition Greens and liberals.
That's
because a weakened Lufthansa would hurt Frankfurt’s position as a global aviation
hub that has developed its intercontinental links over decades. It would also
hand important destinations in North America and China for exporting high-value
German-made goods, and the executives that run the companies that make them, to
rival carriers.
The talks
over the bailout, which includes a three-year €3 billion loan, were no secret,
but the result is the largest airline rescue package and the biggest backstop
yet from Germany's massive Economic Stabilization Fund launched to keep the
country's economy from collapsing under the stress of the pandemic.
Turbulence
could come if Lufthansa is asked to give up some of its airport slots and
routes by the watchdog in Brussels.
It's also
the largest airline rescue in Europe; Air France got a €7 billion loan from the
French government while Alitalia has been renationalized for €3 billion.
The cash
injection gets Berlin a 20 percent stake in Lufthansa and the option to boost
that by an additional 5 percent — enough to allow the government to block any
unwanted takeovers. Two supervisory board seats are included, and the deal also
includes restrictions on management pay and not paying a dividend to
shareholders.
"When
the company is afloat again, the state will sell its shares," Finance
Minister Olaf Scholz said Monday, adding he hoped to do so with a small profit.
The deal
still needs approval from the European Commission's competition authorities,
and Lufthansa's own shareholders. Turbulence could come if Lufthansa is asked
to give up some of its airport slots and routes by the watchdog in Brussels.
“The aid
package for Lufthansa ... must not be endangered by Brussels
overregulation," said Ulrich Lange, an MP for the ruling Christian Social
Union, the Bavarian sister party to the Christian Democratic Union. "The
Frankfurt and Munich hubs must not be weakened in comparison with Paris and
Amsterdam."
Boarding
soon
Lufthansa
has been badly wounded by the coronavirus. Management said last month it is
losing around €1 million an hour, and is carrying only about 1 percent of its
normal passenger load.
Lufthansa
Group, which also includes brands such as Austrian, Swiss, Brussels Airlines
and Eurowings, was forced to ground almost all of its fleet and close its
Germanwings subsidiary. The bailout puts wind behind Lufthansa's plan to get
flights going again to popular tourist hotspots such as Mallorca and Venice
from next month.
The
government has promised to appoint “independent experts" to its two board
seats, which rules out politicians. In Germany's multitiered corporate
governance structure, which mandates worker representation on supervisory
boards, keeping politicians out of the boardroom is important for executives
who may need to make tough choices.
"Just
because you get bailed out it doesn't mean you won't need to fire people,"
said an industry official working in the German aviation industry, something
that might be more difficult if politicians are on the board.
As with
other airline rescues, the emphasis is on keeping the company going, and less
on environmental goals like cutting emissions. The deal involves only a cursory
reference to Lufthansa agreeing to continue with its "sustainability
goals" but stops short of mandating a greener way forward.
Ryanair
boss Michael O'Leary has likened Lufthansa and other flag carriers to drunks at
a wedding.
"Retiring
old aircraft is an easy win," said Andrew Charlton, managing director of
consultancy Aviation Advocacy. "Transferring traffic from short-haul
sectors to rail has also been mooted. That will free up slots for long-haul
flights, which of course, emit more emissions, but which are generally more
profitable."
The airline
bailouts have attracted sharp criticism from the bosses of Europe's low-cost
airlines such as Ryanair, the Continent's largest carrier, and Budapest-based
Wizz Air.
Ryanair
boss Michael O'Leary has likened Lufthansa and other flag carriers to drunks at
a wedding. "They’re just hoovering up state aid to give them unlimited
firepower to distort the competition market once we’re all back flying again,”
he told POLITICO.
"All
these airlines have been poorly managed and poorly run and now they can turn to
their governments to get bailed out and it is certainly distorting the
market," József Váradi, Wizz Air's CEO, told POLITICO before the Lufthansa
deal was agreed.
Matthew Karnitschnig contributed reporting.
BA planning to rehire sacked staff on worse
terms, union says
Unite accuses airline of using coronavirus crisis as
cover for betraying its workforce
Published
onMon 25 May 2020 18.59 BST
The Unite
union has claimed that British Airways plans to fire the vast majority of its
workforce and rehire them on reduced pay and worse terms.
BA informed
unions last month that it was holding a consultation on as many as 12,000 job
cuts. The notice under section 188 of the Trade Union Act means workers could
be made redundant as soon as 15 June.
Relations
between the company’s owner, International Airlines Group, and the unions have
broken down. BA’s boss, Alex Cruz, wrote a letter to staff on Friday criticising
the Unite and the GMB unions for failing to attend consultation meetings to
discuss the plans. Balpa, the pilots’ union, had engaged in consultations, the
airline said.
The unions
say they are unable to negotiate with the airline on major job cuts and changes
to working conditions while workers are furloughed, as meetings of large groups
of people are difficult.
Both Unite
and GMB are understood to be considering legal action against BA on the basis
that a meaningful consultation is impossible during lockdown.
Unite’s
general secretary, Len McCluskey said: “We cannot tolerate BA using this crisis
as cover to impose a long-term plan to slash jobs, pay and conditions. No other
employer has threatened to effectively fire and rehire its entire workforce.
Over 40,000 loyal BA staff now face the prospect of losing either their
livelihoods or potentially being re-interviewed for their own jobs on vastly
reduced terms and conditions.
“If the
proposals were about dealing with the Covid crisis, why is the company
threatening to terminate contracts, including eliminating disciplinary
procedures? This will not help the company get through Covid-19. This is
nothing more than a cynical act of corporate greed and a betrayal of the BA
workforce and Britain.”
McCluskey
has written to the IAG board demanding it withdraw the section 188 notice,
which the union argues would give more time for meaningful negotiations.
The airline
says the job cuts are necessary because of the prospect of lower demand for
flights for years to come.
A BA
spokeswoman said: “We are acting now to protect as many jobs possible. The
airline industry is facing the deepest structural change in its history, as
well as facing a severely weakened global economy. We are committed to
consulting openly with our unions and our people as we prepare for a new
future.”
A GMB
official declined to comment.
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