23 ms·
German government to bail Lufthansa out of bankruptcy with nearly $10B state aid
- deleted 7y ago[deleted]
- znpy 7y agoAren't state aids forbidden in the EU?
- goatinaboat 7y agoShe who pays the piper calls the tune
- leadingthenet 7y agoThat “she” is very forced.
- asdff 7y agoYe?
- gumby 7y agoNo need to be so formal!
- gumby 7y agoI assume it’s a Merkel reference.
- goatinaboat 7y agoNot at all, “she” is Angela Merkel. EU policy on anything, no matter what was previously written down, is whatever she wants it to be because Germany pays all the EU’s bills. I see at least 4 people didn’t get it either, Americans are so insular.
- leadingthenet 7y agoI'm not American, it's just a common expression that starts with "he", not "she". I guess I should've paid more attention to the context...
- MrAlex94 7y ago> A company which receives government support gains an advantage over its competitors. Therefore, the Treaty generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of ensuring that State aid complies with EU rules. https://ec.europa.eu/competition/state_aid/overview/index_en.html https://ec.europa.eu/competition/state_aid/overview/index_en...
- dirtydroog 7y agoHistorically, only if the company wasn't French. Now it seems it's a free-for-all, unsurprisingly.
- jotm 7y agoNot for bailouts of struggling business (of special importance) if I understand it correctly.
- econcon 7y agoHow is it not unfair advantage? If you let a business keep trying again and again, yes it offers unfair advantage over companies in other countries which might not have funds to support their companies. One who flies the highest, falls the highest - these companies remain unaffected by small cities but when large one strucks these are getting bailed out.
- Flip-per 7y agoNot at all. Even the ECB is buying company bonds since the financial crisis. The first "source" I found is in German only unfortunately: https://de.wikipedia.org/wiki/Wertpapierkaufprogramme_des_Eurosystems https://de.wikipedia.org/wiki/Wertpapierkaufprogramme_des_Eu...
- papermachete 7y agoThanks for your taxes.
- Hackbraten 7y agoYou’re welcome.
- wiz21c 7y agoDoes it mean that every german will have to pay about $10B / 80m = 125 euros for that ? So it means that they'll have, for example, to wait a little longer to buy their next phone, or lunch ? (I ask the question here because that's the kind of reasoning I read in the press but I'd like to know if it's as simple as that)
- longtermd 7y agoNope. Because they have already paid all of this in taxes. It means, that the 10 bn won't get 'invested' by the government in another project, e.g., welfare benefits, infrastructure, health, or education. Alternatively, it means: nothing of all of those, but inflation will rise an additional 0.0001% (if the funding source is printing money vs. using tax payer money)
- TekMol 7y agoThere is no direct link between printing money and inflation. But 0.0001% seems too optimistc. For example the EZB has about 5 Trillion Euros out. 10B more would increase the amount of EZB money by 0.025%.
- hanniabu 7y ago> There is no direct link between printing money and inflation what....
- toomuchtodo 7y agoAcademically, there is a link, but it has not been born out in recent times by central bank policy and the resulting economic observations. https://www.frbsf.org/economic-research/publications/economic-letter/2019/july/why-is-inflation-low-globally/ https://www.frbsf.org/economic-research/publications/economi...
- Flip-per 7y agoThe bailouts that are happening now will increase the state debts, so no, they did not pay all of this in taxes already.
- mrep 7y agoYahoo finance says their market cap is 4 billion [0] and yet they are getting a bailout worth 2.5 times their market cap. That's crazy. [0]: https://finance.yahoo.com/quote/lha.de/ https://finance.yahoo.com/quote/lha.de/
- isoprophlex 7y agoCould be even crazier: Air France / KLM has a 2B cap; they are getting bailouts to the tune of 2B-4B (dutch gov., amount to be determined) + 7B (french gov.)
- vonmoltke 7y agoThey are trading at a really small fraction of their book value, currently 0.37[1]. In addition, their book value is being weighed down by debt. I don't know why people fixate on market cap in cases like this. [1] https://finance.yahoo.com/quote/LHA.DE/key-statistics?p=LHA.DE https://finance.yahoo.com/quote/LHA.DE/key-statistics?p=LHA....
- fuckyah 7y agoBecause huge debt might decrease future returns?
- ISL 7y agoBecause it, in ideal terms, is how much it costs to buy the company outright?
- SilasX 7y agoAre we sure that the "market cap:book value ratio" is not an artifact of a) the stock price being marked down by the market, while b) their (e.g.) planes have not been explicitly revalued in light of the lower demand? That's probably why the board doesn't shrug and vote to liquidate assets and pay shareholders more than their shares are worth.
- akerro 7y agoAlso no the first time the government is bailing them out
- whalesalad 7y agoMeanwhile American Airlines needs like 12 trillion dollars to keep the lights on. Can't wait for the day where we let that pathetic airline fail.
- joering2 7y agoWhat angered me even more they don't care. Recent news shows that "post"-covid they cram people like sardines and mask are optional because... there is no law forcing them. Its such a terrible thing that multi billion dollar behemoth needs laws and regulation for every single damn thing, and can never lead as an example. https://www.businessinsider.com/american-airlines-full-flight-passengers-masks-coronavirus-2020-4 https://www.businessinsider.com/american-airlines-full-fligh...
- asdff 7y agoThe world didn't end when Pan Am failed, although many thought it would. No reason to prop up shitty businesses that continue to make bad decisions, I don't care how large they are. If there is demand for their service supply will appear. Rewarding bad decision making with artificial demand is degenerate.
- bogomipz 7y agoAnd it also didn't end when TWA, Eastern Airlines, Braniff or Tower failed either. It seems oddly perverse that these same American carriers who made billions by "nickle and diming" their customers with fees, penalties and taking basic services away now want a bailout from them. And it's hard to imagine a future where these same carriers don't go back to these same practices with a fervor in order to pay that money back or return to profitability.
- hanniabu 7y agoNo, we can't let them fail, that'd be capitalism!
- joyj2nd 7y agoMany major national carriers have national importance. So, no, they won't go bankrupt. Be it Lufthansa, Air France, Air China, or whatever. Airlines like Ryanair and Wizz air might be different.
- klohto 7y agoOther sources are reporting only $1B. What is this article based on?
- jotm 7y agoA tweet.
- joering2 7y agoRegarding US bailouts, can someone here more knowledgeable can help me understand how a company that has been fined tens of millions of dollars for ocean pollution, is not US-based incorporated, does not pay taxes on US soil, is in large part responsible for citizens obesity, and hire less than 0.17% American citizens, got bailed out by Feds to the tune of billions of dollars? https://www.wsj.com/articles/how-fed-intervention-saved-carnival-11587920400 https://www.wsj.com/articles/how-fed-intervention-saved-carn...
- deleted 7y ago[deleted]
- MattGaiser 7y agoBased on that article, they did not bail out Carnival. The Fed just bought a pile of other assets, which meant that investors had more cash to put into other investments like bonds for Carnival, driving their interest rates on the bond market down. It was not directly bailed out. Action by the Fed just made all debt investment more attractive and that made more investors compete for such investment, lowering the interest rates Carnival (and every other corporation issuing bonds) faced.
- monksy 7y agoBased on my experience with Lufthansa. That's an organization that should fail. If anything happens on your journey that is not average, the agents always blame you first.
- haunter 7y ago>If anything happens on your journey that is not average, the agents always blame you first. So basically every airline ever? Unless you are in the ultra premium VIP exclusive membership club.
- joyj2nd 7y agoNah. Aeroflot, Turkish, Ethiopian and Delta have pretty good customer service.
- joyj2nd 7y agoWhy the downvote? Have you used this airline? Aeroflot, Turkish and Ethiopian are in an excellent geostrategic position for the future. I hold SU and TK gold elite, both just emailed me: Due to the crisis the both extend my gold elite status for 12 months/6 months without any need to accumulate miles to reach status.
- monksy 7y agoUnited has treated me better than LH. Just one of the many examples about how LH has treated me badly: LH has to downgrade the plane from FRA-LHR, and people will get involuntarily denied. (LH Metal FRA-LHR, UA Metal LHR-ORD) I have 2 award tickets on my iterary. I offered to voluntarily reroute we can go United metal leaving Germany, the agent's response was "WHO TOLD YOU THIS!" They tried to offer both of us FRA->ORD direct via LH, I rejected. They ended up sending my bag to JFR later for me to claim missing baggage. (United had to fix their problem) My dad's bag arrived just fine in ORD.
- linuxftw 7y agoThe only reason an airline would need a bailout is if they have acquired significant debt that they are unable to service. If the airline is being 'bailed out' what's really happening is the airline's creditors are being bailed out. The banks can afford to take a haircut on their debt and they can renegotiate terms. Of course, many of the creditors might be unsecured bond holders, which, I'm unsure of how the scam works in Germany, but in the US that effectively is some crappy fund you own in your 401k. So the banks smartly package and sell debt to idiots (common people with a pension/retirement account). The government has to keep the worthless bond market afloat because everyone's invested in the scam. That helps keep interest rates low so the mega corporations can get free money from bonds that bear interest well below market rates.
- sonthonax 7y agoWhat does this mean in the context of state aid rules? I'm quite worried that the EU's attempts to pick up the pieces of the economic carnage will clash with Britain's attempts. Inability to agree what counts as fair, will be a major block in any negotiation, and catalyse the economic partition of Brexit.
- stefano 7y agoThe EU has temporarily removed state aid rules.
- makomk 7y agoIt means that the wealthy states get wealthier and the poorer get poorer. State aid rules have been massively relaxed, but the structural problems with the eurozone that mean Germany can afford to bail out their businesses like this and other poorer, worse-hit countries cannot are still there. I'm not sure Brexit is the EU-related economic partition we should be most worried about right now.
- oaiey 7y agoTo the point.
- jotm 7y agoIt means Brexit is stupid as the UK could've done whatever it wanted within the EU.
- oaiey 7y agoWell, they will work that up later. Money is transferred as compensation and everyone is happy.
- tasubotadas 7y ago>The company will take the money but the state won't get a say: this is a concise summary of what Lufthansa's Executive Board, headed by CEO Carsten Spohr, has been telling German politicians in the past few weeks. That's awesome. Create a crappy business, hire 130k employees, and get the state to pay for your failures. At this point, I would be happier that they would just give the money to Google and Facebook which proved that they know a thing or two on creating value and sustainable business. Obviously, airlines that have been doing fine (Ryanair, Wizzair?), won't get a dime which seems completely absurd. I did some quick googling and apparently Ryanair has similar opinion: https://www.bloomberg.com/news/articles/2020-04-24/ryanair-s-o-leary-warns-eu-he-may-sue-to-stop-airline-bailouts https://www.bloomberg.com/news/articles/2020-04-24/ryanair-s...
- dahdum 7y agoIsn’t the German government taking a stake in the company again, as a state holding? They can sell that to recoup the investment later on. Letting it fail seems like it would drop GDP / tax revenue while pushing thousands onto social welfare.
- oaiey 7y agoIt will be a net positive deal for sure. Germany can currently borrow money for free (they have negative interest) and invest when the shares of the company are super low. Plus all the welfare stuff mentioned.
- curiousgal 7y agoHow is it a crappy business? It literally took countries shutting down their borders and people not traveling at all to bring them to their knees.
- dingo_bat 7y agoIf an average person were laid off today and couldn't find a job for 1-2 months, would they go bankrupt? I think most people would be able to survive on their savings for a month or two. Companies should also be held to the same standard. They should have enough savings to survive this sort of disruption, just like a person would. So yeah, if your company can't survive a month without revenue, it is a crappier than average business.
- gumby 7y agoShrewd negotiation by the CEO! Unlike, say, Volkswagen which has a significant stake owned by Niedersachsen and politically appointed board directors, Lufthansa will have two non-politician directors and no state veto.
- oaiey 7y agoA blocking minority sounds different than a "no state veto".
- smoyer 7y agoOne thing that I think the business world has finally learned during the COVID-19 social distancing is that business travel isn't nearly so important as we had imagined. And attending conferences was always fun but it's been amazing to watch how fast conferences have switched to an on-line format (well ... the technical ones that I would attend). So it's my opinion that the airlines, hotels, conference centers and taxi/ride-share companies are in for a rude awakening. Tourism might increase when this isolation ends, but I think there's going to continue to be a serious contraction in the market segments that support business traveling. And when you combine it with the financial damage done to businesses during the pandemic, they've got two fiscal reasons for eliminating business travel.
- buboard 7y agoTBH i expected this to happen some time. I wonder how much funding agencies like NIH , ERC etc spent on travel grants per year. From my experience it s a lot
- ISL 7y agoThere's still a huge difference between meeting people in the halls at conferences or working with them during a seminar-visit and looking at video-conference screens.
- ianhawes 7y agoThis. I think if anything, there will be a minor bump over the next year or so, but it won't be long until people find out that really connecting still requires meeting in person. We are social creatures after all.
- buboard 7y agoNot sure if huge. i ve enjoyed lectures more, and there is a lot of interaction in breakout chat rooms , probably more that RL conferences Also, conferences easily scale to thousands now
- jotm 7y ago
- rndgermandude 7y agoThe German media does not have this story (yet?). The best I can find that the German govt made an offer for a EUR 9B bailout, which would be (in large part) a credit which would lead to a commitment of EUR 500M per year in repayments (which the Lufthansa doesn't want), and the govt wants two board sets (which the Lufthansa doesn't want). It is also reported that the Lufthansa is looking into opening a "Schutzschirmverfahren" (special case of bankruptcy law, which you can file when you're not yet insolvent but soon might be, aimed at allowing a company to become viable again mostly by itself), has EUR 4.4B in the bank, and wants to have a final decision by end of May. (from a story published less than 1h ago in SZ). Maybe BI knows something everybody else doesn't...
- HenryBemis 7y agoIt's like the Chapter 7 vs Chapter 11 for our friends in the US.
- itcrowd 7y agoFrankfurter Allgemeine reports seem to agree with your statements and also see 1-2 week timeframe for further negotiations. Strange that BI somehow has the scoop. https://m.faz.net/aktuell/wirtschaft/lufthansa-erhaelt-erste-staatshilfen-aus-der-schweiz-16747710.html https://m.faz.net/aktuell/wirtschaft/lufthansa-erhaelt-erste...
- itcrowd 7y agoCan't edit above post anymore, here's a small update. The Suddeutsche Zeitung has a similar story to FAZ where there have been negotiations between gov and Lufthansa, but that the two parties are far apart and negotiations are not close to an end. Timeframe for finalizing negotiations is said to be before the end of May. SZ seems to have some insider sources too, so now I am really in doubt about the legitimacy of the Business Insider reporting. https://www.sueddeutsche.de/wirtschaft/schutzschirm-lufthansa-tickets-1.4891100 https://www.sueddeutsche.de/wirtschaft/schutzschirm-lufthans...
- netcan 7y agoFor the sake of argument.... What happens if no airline gets any bail-out money? Do we end up with worse air travel in a year or two?
- a3_nm 7y agoAnd maybe we reduce the total amount of travel, which is crucial to reduce our carbon footprint. These airline bailouts are a huge missed opportunity.
- Aachen 7y agoI also have yet to hear why we would want to save these companies in the first place. I guess the money is flowing into banks' coffers, paying off airplanes? Or are there other costs they're currently making? What is free money going to do for the airline, pay employees that have no work to do anyway? Wouldn't it be more efficient to give them the money? I don't care if Lufthansa goes bankrupt and someone else buys their planes for pennies on the dollar, gives them an inspection after covid-19, and life continues as usual. How are these 10e9 spent other than throwing it into a black hole? There's probably more to it than I know, but I have yet to hear the reason we're keeping those businesses alive.
- Wohlf 7y agoYou end up with thousands of lost jobs right now, not just Lufthansa going under but all the businesses that serve them. That's why governments bail out companies.
- netcan 7y agoWe've ended up with thousands of lost airline jobs regardless. They aren't paying salaries while flights are grounded. Jobs are ultimately proportional to the number of people flying. More flights, more jobs. I appreciate that people expect help, and I would be fine with money for airline employees. I'm skeptical that a bail-out does that much for jobs though. The jobs will (or won't) return as flights do, unless the airlines aren't operating. I'm open to being convinced, the above question was genuine. I don't really understand the alternative. What happens in a no bail-out situation?
- tannhaeuser 7y agoSadly, France and The Netherlands bailing out Air France and KLM last week, resp., forced the hand and diminished leverage for the German federal state I guess. I thought subsidies (to former state monopolies, of all things) was the one thing that need explicit consent under EU treaties. Now the people of DE, FR, and NL have to bail out a business that has no perspective to return a profit for the foreseeable future. Those who have protested against excessive air travel have to pay the bills long term (before coronavirus, flight shaming and "Fridays for Future" was a thing). I think this is a big missed opportunity to come up with a sustainable agenda to put a large electorate behind as a perspective out of the coronavirus economy crisis.
- StreamBright 7y agoThe problem is that these companies are so inefficient and the conserved the 30 years old business practices very well internally because the governments are keep bailing them out. Maybe it would be for the better to let them fall and start over. Build an airliner that operates effectively and widen the margin. There are other alternatives. For 10 - 15B EUR (estimated) we could connect the major European cities with a high speed train network powered by renewables / green energy. If we keep bailing them out this surely won't happen.
- lostlogin 7y agoYour point brings up rail companies. I can’t see that they would be doing great right now, but a brief search doesn’t seem to show that they are circling the drain. I wonder why?
- StreamBright 7y agoNot sure. The good thing about rails vs flight is that you can swap out the energy source. As your energy production gets greener your entire travel gets greener. With airlines, it is not even a remote possibility to change from kerosine based engines to electric or other green alternatives, Europe is very small and relatively dense. It would be a great way of commuting.
- deleted 7y ago
- ridgewell 7y agoLufthansa: Where fuel surcharges don't match up with reality.
- ArmandGrillet 7y agoQuestion: Lufthansa's market cap is less than 5Bn, why is the German government not buying it for that amount, bailing it, then (hopefully) selling it in a decade when the situation improves? France is bailing Air France, Germany is bailing Lufthansa, what does it mean for a company like EasyJet? Will it get bailed too or just crash due to governments helping some companies but not others?
- fulafel 7y agoAfter buying, they'd just have ownership but would still have to pump in just as much additional money. (Also you can't generally succeed in buying a company at its market cap value off the stock market becausenthe stock price goes up witj the demand)
- patall 7y agoThe second is actually why noone really knows if this will go through. EU law may prevent most kinds of subsidies for national carriers.
- odiroot 7y agoMarket cap tells you only the story of the equity. It doesn't include the liabilities.
- beefield 7y agoI have always difficulties understanding these kind of statements: "appointment of civil servants or politicians to the supervisory board was unacceptable in the eyes of Lufthansa's executives." Like, how is that any of executives' business who is on the supervisory board? If they do not like the money, find other investors, easy as that? It is almost like "ownership" is not a concept that should be associated with corporate shareholders at all, because it seems that the relationship between shareholders and corporation has very little resemblance of actual ownership. Same thing applies to "hostile takeovers". What on earth is that? How come executives of the company I have shares at think they are anyhow entitled to have an opinion about me selling my shares to whom I want? None of their business whatsoever. If they want to have opinion, offer me better price.
- wjnc 7y ago1. In a dual board one could describe members of both boards as executives. I can quite understand supervisory board members to be unwilling to work with political agents on their board if they feel the firm's not lost yet. 2. Hostile takeovers are hostile to current management. You are obviously free to do what you want with your share. It's the firm treating the takeover as hostile. Shareholders are free to vote in / remove executives in order to change the way a takeover is perceived.
- LargoLasskhyfv 7y agohttps://www.spiegel.de/fotostrecke/cartoon-des-tages-fotostrecke-142907.html#bild-8d1f948c-503c-4869-9e10-324291e08147 https://www.spiegel.de/fotostrecke/cartoon-des-tages-fotostr...