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German government takes 20% stake in $10B Lufthansa bailout

By
Jean Lotus
Lufthansa said sharp declines in air travel due to the coronavirus pandemic resulted in a $1.3 billion loss in the first quarter of 2020. File Photo by Jim Bryant/UPI
Lufthansa said sharp declines in air travel due to the coronavirus pandemic resulted in a $1.3 billion loss in the first quarter of 2020. File Photo by Jim Bryant/UPI | License Photo

May 25 (UPI) -- Lufthansa Group announced Monday that the airline will receive a $10 billion bailout from Germany, giving the government a 20 precent stake in the company and two seats on the airline's board.

The biggest airline in Europe, with subsidiaries in Germany, Austria, Switzerland and Belgium, negotiated a "stimulation package" which allows the company to buy back more than $6 billion in shares from the government by the end of 2023, providing the company has paid back the government's investment and if share prices have increased.

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Lufthansa said sharp declines in air travel due to the coronavirus pandemic resulted in a $1.3 billion loss in the first quarter of 2020. CEO Carsten Spohr said the company planned to eliminate 10,000 jobs and would shut down Germanwings, a low-budget carrier.

"Before the pandemic, the company was healthy and profitable and had good prospects for the future, but it faces an existential emergency because of the current corona crisis," the German government said Monday in a statement. "The federal government's stabilization package takes into account the needs of the company as well as the needs of taxpayers and employees of the Lufthansa Group."

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Around 95 percent of Lufthansa's 760-plane fleet is currently grounded, although the company has said it would resume some flights in June, with as many as 160 aircraft in the air as coronavirus restrictions are lifted worldwide.

The rescue package -- from Germany's Federal Economic Stabilization Fund -- gives the government 20 percent of shares in the company at a subscription price of $2.79 per share, which could increase to 25 percent plus one share in the event of a hostile takeover attempt, the company announced.

The bailout must be approved by the European Union and company shareholders.

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