German and Dutch governments put up billions to save airlines

Jill Petzinger
Jill Petzinger, Germany Correspondent, Yahoo Finance UK
KLM airplanes in front of Schiphol Airport, near Amsterdam, the Netherlands. Photo: Sjoerd van der Wal/Getty Images

The governments of Germany, the Netherlands and France have offered financial bailout packages worth billions of euros to save their flag-carrier airlines from going bust, after the coronavirus pandemic brought the aviation industry to its knees.

The Dutch government has agreed to contribute €3.4bn (£3.07bn, $3.8bn) to a bailout of the Air France-KLM (AF.PA) airline alliance.

The KLM rescue package will be a mixture of loans and guarantees, according to Reuters, and the Dutch government will appoint a trustee to the board. France got EU approval in May to offer a €7bn bailout to Air France, so in total the partner airlines are set to get €10.4bn in state support.

In Germany, shareholders in Lufthansa (LHA.DE) approved the government bailout offer of €9bn on Thursday (25 June), after weeks of deliberation and debate while the airline rapidly ran out of money.

READ MORE: Lufthansa shareholders approve €9bn German government bailout

The Lufthansa bailout is structured as €5.7bn of silent capital contribution and €3bn as a loan from state-owned development bank KfW. Berlin will also take a 20% stake in the airline, worth €300m, and get two supervisory board seats.

The government buying a stake at that price was an issue for Lufthansa’s biggest shareholder Heinz Hermann Thiele, who could have torpedoed the deal, but backed it at the last minute.

Ryanair (RYAAY) chief executive Michael O’Leary said in May that he intends to appeal to the European Commission over the Lufthansa bailout, which he slammed as “illegal state aid, which will massively distort competition.”

READ MORE: EasyJet raises £419m in battle to survive crisis

In order to approve the Lufthansa rescue deal, the European competition regulator ordered the airline to give up some valuable landing slots at Frankfurt and Munich airports. It has also placed caps on executive salaries and been asked to waive dividends.

In the UK, British Airways owner IAG in May said it had requested £300m ($372m) from the government-backed Coronavirus Corporate Finance Facility.

The bailouts and loans will likely still fail to prevent massive job cuts across all airlines, including British Airways, Ryanair, Lufthansa, EasyJet, and Qantas.