Lufthansa joins list of government bail-outs

Lufthansa bail-out: Lufthansa has become the latest flagship airline to be bailed out by its national government when the authorities in Bonn yesterday announced a €9bn rescue package. The carrier has been losing an estimated €1m an hour since passenger numbers collapsed to 1% of their pre-pandemic numbers. In return, at least 20% of the Frankfurt-based (and Europe’s second-largest) airline group will return to public ownership, just 25 years after it was privatised.
The bail-out is subject to EU and shareholder approval and will include a €3bn investment loan from the country’s state-owned development bank KfW. At the same time, Germany’s Economic Stabilisation Fund – set up expressly to cushion the impact of the Covid-19 pandemic on German businesses – will pay €300m to buy new shares at a nominal price of €2.56 each, diluting the value of the stock held by existing investors in the process.
After grounding 700 of its 760 fleet in recent weeks, Lufthansa is planning to ramp up its operations again next month and to offer flights to 130 destinations by the end of June, subject to travel restrictions in individual countries; and because Lufthansa counts Austrian Airlines, Swiss Airlines and Eurowings among its subsidiaries, the bail-out represents a shot in the arm for the continent’s wider travel and tourist industry.
Germany becomes the latest country to step in to underwrite its crisis-hit airline sector. The global aviation industry has been one of the sectors hit hardest by the outbreak of COVID-19, with many airlines having grounded the majority of their fleets and some major flag carriers’ flights slashed by over 90%. British Airways, Singapore Airlines and Cathay Pacific are all examples of traditional flag carriers that have grounded more than 90% of their fleets and other governments around the world have already stepped in to offer extensive support packages to their major airlines. Singapore Airlines has received $15bn and the Australian government has pledged $1bn in support for Qantas,
Elsewhere, UK airlines including Virgin Atlantic and EasyJet have asked the government for £7.5bn in immediate support and US commercial airlines have requested $50bn from Washington. As early as March, Italy’s largest airline Alitalia returned to government ownership for survival (not for the first time).
Just how effective these bail-outs will be and when or even if the governments involved will ever be able to fully privatise their national carriers again will depend on the global healthcare sector’s success in conquering or at least controlling COVID-19. Even then, the future shape of the airline industry will depend on the proportion of  potential passenger able to afford a plane ticket and, with video conferencing now widely available and acceptable as a cheaper option, on the business community’s willingness to fly as frequently as before.