Lufthansa says ‘unable to approve’ coronavirus rescue due to EU’s harsh state aid conditions

Airline giant Lufthansa said it cannot approve a German state rescue over fears that conditions imposed by Brussels would be too harsh.

The EU’s conditions “would lead to a weakening of the hub function at Lufthansa’s home airports in Frankfurt and Munich,” the Group said in a press release.

Coronavirus-hit airline Lufthansa on Wednesday said its supervisory board was “unable to approve” a €9 billion ($9.9 billion) rescue plan from the German government because of fears that conditions imposed by Brussels over accepting the support might be too stringent.

“Conditions currently indicated by the EU Commission … would lead to a weakening of the hub function at Lufthansa’s home airports in Frankfurt and Munich” and must be “analysed intensively,” the company said in a statement.

“Against this background, the Supervisory Board was unable to approve the stabilisation package in connection with the EU conditions.”

Breach of competition rules?

Following weeks of negotiations, the German government and Lufthansa struck a deal on state aid on Monday, including secured loans and a 20% government shareholder stake in the airline.

But first, EU competition regulators must evaluate whether the government aid package restricts competition in the European aviation sector.

Under EU law, member states are generally prohibited from providing financial aid to national companies because it can distort fair competition in the EU’s single market.

However, as the coronavirus pandemic has hit many sectors hard, especially aviation, regulators in Brussels have allowed for looser regulations.

Budget airline Ryanair said Tuesday it would contest the package, claiming that government-backed aid would make it harder for no-frills carriers to compete in short-haul markets to and from Germany.

The board, which had been expected to sign off on the aid, instead refused EU requirements that Lufthansa permanently give up take-off and landing slots at Frankfurt and Munich airports, where it commands a two-thirds market share.

The bailout plan nevertheless remains “the only viable alternative” to insolvency, Lufthansa said, and negotiations will continue over EU demands that would “lead to a weakening” of its airport hubs as well as its ability to repay loans.

The European Commission had “no comment on the specific case”, a spokesperson said.

Terms discussed with Brussels included the forfeiture of 72 slots used by 12 of 300 jets based at the two airports, a source familiar with the matter said. But whereas Lufthansa wanted to reclaim the slots after repaying aid, the Commission sought permanent concessions, the person said.

rc/sms (AFP, Reuters, dpa)