German Government Confirms Bailout For Lufthansa
Struggling German airline giant ‘Lufthansa’ is on the verge of being bailed out by the government in an AUD$15 billion deal which would entitle it as the largest shareholder- if competition authorities and other investors agree. The coronavirus-inflicted shutdowns have grounded the majority of Lufthansa’s fleet, which saw the airline requiring urgent financial assistance. The deal will witness the German government holding a 20% stake in the airline which it will sell at the end of 2023. Stock markets within Europe rose on this news with Lufthansa’s share price rising 7.5%. Germany’s DAX closed 2% higher while the Frankfurt-based index saw its highest peak since March 6, 2020.
The Finance Ministry released a statement mentioning that a key component of this deal with the German government is for Lufthansa to focus on reducing its ‘per kilometre emissions’, through investing in cleaner aircraft and purchasing alternative fuels where feasible. Unfortunately, the total greenhouse emissions produced from Lufthansa’s activities rose to record highs in 2019 despite fuel efficiency improvements. The company’s 2019 sustainability report revealed that increased flight volumes overshadowed their efficiency improvements.
As one of the wealthiest nations in Europe, Germany has fared better than most other European countries, reporting an unemployment rate of 5.8% in April 2020. Germany’s economy is heavily reliant on industrial exports and orders saw a drop of more than 9% between February and March- cited as the largest drop since 1991. Total exports are predicted to fall 11.5% in 2020 while the broader economy as a whole could shrink by 6.3%. In the first quarter of 2020, Germany’s GDP shrank 2.2% compared to the previous quarter. This fall is marked as the sharpest quarter-on-quarter contraction since the global financial crisis in 2008.
Interestingly, the largest international airline in the world, Emirates, has voiced that it is quite optimistic about its future and is predicting to have all of its aircraft back in full operation by mid-2022. Domestic travel will resume faster than international flights, although it is inevitable that severely hit COVID-19 locations will have reduced passengers travelling to these destinations. Other competitors are not as optimistic and are estimating to cut their fleets by around 20% and recovery plans extending into 2024.
IATA global airline group has cited that airline passenger revenue is expected to drop by 40% in 2020. Potentially more than 25 million jobs within the aviation and related industries are at risk of being lost. Government intervention through the support of stimulus or bailout measures are inevitable to ensure that competition between airlines still exists and a monopoly does not control this industry. Of note, the deal posed with Lufthansa is not a grant, and the airline will need to prepare to repay the government as they exit the stock in 2023.
By Caroline Wong
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