Lufthansa accepts slot reduction amid €9 billion stabilization package

The German flag carrier Lufthansa has finally made a decision regarding the European Commission’s demands to symbolically reduce the number of landing slots in both of their Munich and Frankfurt hubs. This is in order to unlock the €9 billion state bailout package.

Lufthansa's Airbus A321neo. Photo by Jero Vida | AeroNewsX

Earlier this week, reported that Lufthansa’s Supervisory Board postponed the acceptance of such conditions over concerns of an eventual repercussion on the carrier’s financial health once the pandemic is over. However, their stance seems to have taken a last-minute turn as the Supervisory Board contemplates the state-backed-fund as “the only viable alternative to maintaining operational solvency.”

Likewise, Lufthansa has also noted that in this final agreement the EU has reduced the scope of commitments in comparison to the initial one.

The presence of the airline will therefore be slashed by 24 take-off and landing slots (three daily round-trips per aircraft) in each of the German mega hubs, meaning the removal of up to four aircraft from the airports. This concession, that has raised great controversy among stakeholders, politicians and industry competitors, represents the last hurdle to obtain the cash it desperately needs to keep the company afloat.

Lufthansa's Airbus A330-300. Photo by Devin Ruhotina | AeroNewsX

During the initial talks with the European Commission Competition Watchdog, the Federal Minister of Transport and Digital Infrastructure, Andreas Scheuer, qualified the demands as “unfair” and said that “the European Commission doesn’t do this with other airlines,” referring to Italy’s plans to nationalize Alitalia. Parallelly, the labor-heavy board stressed on the fact that these slot reallocations would result in massive job losses as the market would shift towards low-cost airlines that usually pay less to their staff.

In fact, Markus Wahl, president of the VCI Pilots’ Union said in an email statement that “the 140,000 jobs at Lufthansa cannot be endangered through nonsensical and competition-distorting demands.”

Nonetheless, the EU applauses Lufthansa’s compromise (which still needs to be formally approved by all parties) to accept such conditions in order “enable a viable entry or expansion of activities by other airlines at these airports to the benefit of consumers and effective competition.” This is a sentiment shared by Ryanair as it is actively involved in denouncing state-aid packages as mechanisms that deteriorate normal competition levels in the industry. According to Bloomberg, Germany’s DLR aerospace center has estimated the group has 2/3 share of the nation’s commercial aviation market.

The slots to be given up by Lufthansa are reserved to European counterparts that have not received substantial state recapitalization amid the COVID-19 outbreak, and will be allocated in a bidding process which will only include new competitors for the first 18 months. If no new competitor makes use of them, they will then be extended to existing ones at the respective airports. Airlines such as Ryanair and easyJet are expected to bid, although their position is quite limited as they already operate at least at one of the airports.

Lufthansa's Airbus A320-200. Photo by Max Sutton | AeroNewsX

The Supervisory Board must still convene an Extraordinary General Meeting (expected soon) to obtain the shareholders’ consent to support the board’s decision. Once ratified, the European Commission should then sign off the final approval.

The German rescue package is set to be the largest in the country and the public participation will account for at least a 20% stake of the company. However, the intention is to sell this weighty stake before 2023.

The whole Lufthansa Group is also expected to receive up to €2 billion euro from various governments where the company owns different subsidiaries.

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