EU sets its price for backing $9.8bn Lufthansa rescue

Bloomberg

The German government’s 9 billion-euro ($9.8 billion) bailout of Deutsche Lufthansa AG may cost the stricken carrier some valuable assets: Key flight slots at airports in Frankfurt and Munich.
The European Commission wants Lufthansa to surrender the slots out of concern the aid will give the carrier unfair advantage over competitors, people familiar with the matter said.
After weeks of talks, Germany offered Lufthansa a package of loans and equity investment to keep the carrier aloft through the coronavirus storm.
Officials in Brussels are concerned the deal will distort competition and fuel lawsuits from competitors like Ryanair Holdings Plc, the people said. Approval of the deal could take several weeks, they said, asking not to be named discussing confidential deliberations.
To compensate for the state help, the European Union’s executive arm also would like the airline to decrease the number of aircraft based in Germany, the people said. German Chancellor Angela Merkel told a meeting of conservative lawmakers the government would fight for Lufthansa to keep key slots, people familiar with the matter said.
“The discussions with the European Commission are continuing at full speed,” German Economy Minister Peter Altmaier said at a news conference in Berlin.
“So far, we have managed to get approval from Brussels for all our aid requests during the corona crisis. How long it will take I cannot say, but the main point for us is that we want to achieve a good result.”
Lufthansa shares advanced on Tuesday, building on May 25’s 7.5% gain in the wake of the deal. Analysts at Deutsche Bank AG said that while some of the terms of the German government deal were less punitive than expected, it would leave Lufthansa with high debt levels.
Still, the cost of protection against a default by Lufthansa dropped to its lowest level in three weeks, according to Bloomberg data.
“Lufthansa still faces huge challenges, including the right-sizing of the company and
difficult labour talks,” Societe Generale analysts Michael Kuhn and Sumit Mehrotra wrote in a note to clients. In addition to potential snags for the deal in Brussels, “the main profit driver, intercontinental traffic, will take a long time to recover.”
Airport slots are a crucial currency for airlines, providing them with the ability to operate flights at popular times and to coveted destinations. It’s a commodity that EU regulators have often asked carriers to cede to smaller rivals when seeking approval for mergers, including during Lufthansa’s 2017 takeover of a unit of Air Berlin.