Deutsche Lufthansa AG (DLAKY) on Monday announced that it has reached an agreement with the German government on a €9 billion ($9.8 billion) bailout package.
As part of the bailout package, the German government will get a 20% stake in the ailing German carrier. In the event of a takeover of the airline, the government may also increase its stake to 25% plus one share.
Commercial airline travel has fallen off a cliff due to coronavirus-induced lockdown restrictions forcing many global airlines around the world to ground the majority of their fleets, suspend aircraft deliveries, streamline operations and ask their governments for financial aid packages. U.S. airlines including American Airlines (AAL), United Airlines (UAL) and Delta Air Lines (DAL) have also sought state aid.
In addition, the German government, which is buying new shares at the nominal value of 2.56 euros per share for a total of about €300 million, will be committed to sell its shareholding in full at the market price by the end of 2023.
The terms of the rescue package will require Lufthansa to waive future dividend payments and limit management remuneration. Moreover, two seats on the Supervisory Board are to be filled in agreement with the German government, one of which is to become a member of the Audit Committee.
The bailout package is still subject to the approval of the airline’s Management Board and the Supervisory Board as well as the European Commission and any competition-related conditions.
Separately, Lufthansa said it will receive a syndicated three-year credit facility of up to €3 billion with the participation of state-backed KfW and private banks.
Since the beginning of this year, the value of Lufthansa shares has more than halved trading at $8.82 in the U.S. as of the close on Friday.
In view of the uncertainty related to the duration of the coronavirus pandemic coupled with a slow recovery in air travel demand, the average analyst price target stands at $6.21, indicating 30% downside potential in the shares in the coming year. The overall consensus rating on the stock remains a Moderate Sell.
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