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Shares in Lufthansa dropped 5.8% on Monday, ahead of a crunch meeting between the German airline’s biggest shareholder, Heinz Hermann Thiele, and Germany’s economics minister on Monday to discuss a $10 billion rescue package.
Thiele, a 79-year-old billionaire, has built up a 15.5% stake in Lufthansa LHA, -4.17%, making him the carrier’s largest shareholder. Thiele has raised objections against the government’s bailout, which would see the state taking a 20% stake in the airline and two seats on its supervisory board.
Read:Lufthansa: Shareholders may not approve bailout
Thiele has pointed to other European airlines, such as Air France-KLM AF, -3.63%, which have received state aid in the form of loans rather than government shareholdings.
Thiele believes an indirect state participation via state-owned German development bank KFW, +0.52% could be an alternative to an outright government stake, according to Reuters.
On June 1, Lufthansa’s supervisory board approved the bailout, which would force it to transfer up to 24 coveted takeoff and landing slots at Frankfurt and Munich airports to some of its biggest rivals. The airline has also said it is looking to slash 22,000 full-time positions, as it struggles to cope with the unprecedented slump in air travel caused by the coronavirus pandemic.
Read:German Airline Lufthansa to Cut 22,000 Jobs.
However, the bailout requires the support of more than two-thirds of its shareholders — who are due to vote on the package at an extraordinary shareholder meeting scheduled for June 25.
According to Citi analysts, only 38% of the shareholder base has registered to vote at this coming Thursday’s bailout-ratifying extraordinary general meeting. “Obtaining the two-thirds required to pass this bill is looking like a struggle. There are three possible outcomes on Thursday, in our view,” the analysts wrote in a note to clients on Monday.
Thiele will meet with Lufthansa Chief Executive and Chairman Carsten Spohr, Germany’s economics minister Peter Altmaier, and the two German ministers who brokered the rescue package in an online meeting on Monday, according to several news reports.
In a letter to employees on Sunday seen by Bloomberg, Spohr said “We face a fateful week for our Lufthansa,” and warned that it wasn’t certain the bailout package will gain approval at the EGM on Thursday.
According to Citi analysts, only 38% of the shareholder base has registered to vote at this coming Thursday’s bailout-ratifying EGM, effectively giving Thiele the ability to veto the proposed package. “Obtaining the two-thirds required to pass this bill is looking like a struggle,” they said.
The Citi team outlined its view on three possible outcomes on Thursday:
1) The bailout passes, the stock rises short-term and Lufthansa spends the next three years rebuilding the business in preparation for a significantly dilutive rights issue.
2) The bailout doesn’t pass, and the government quickly offers to remove its planned equity stake, which Citi believes is “arguably the best outcome for the shares & management team.”
3) The bailout doesn’t pass, no new terms are immediately offered by the government and management resignations follow. In this scenario, Citi predicts that the stock will fall significantly and Thiele could buy more equity and provide cash financing near-term, by collateralizing his stake in rail and commercial vehicle supplier Knorr-Bremse KBX, -0.89%, which would allow him to provide €5 billion plus loans to Lufthansa.
“The major shareholder ends up with a large stake in two German industrial names and enacts a multiyear turnaround plan at Lufthansa which includes the sale-and-leaseback of valuable unencumbered fleet and the spinoff of the much-discussed €3-5 billion MRO [maintenance, repair, and overhaul] business,” Citi wrote in the research note.
Lufthansa had discussed an initial public offering for shares in Lufthansa Technik before the coronavirus crisis.
