Lufthansa working on €3bn funding plan to help repay state bailout

Deutsche Lufthansa is working with banks on a plan to raise around €3 billion in equity to help repay its state coronavirus bailout, according to people familiar with the matter.

The timing and size of the capital increase will be subject to market conditions, and the company could raise the money as soon as June, the people said.

Europe’s largest airline received a €9 billion state bailout last year after the coronavirus pandemic ended a decades-long boom in air travel. The new funding will provide enough cash to repay most of a €5.5 billion silent participation still held by the German government.

Lufthansa’s executive pay and M&A activity is restricted until it has paid back the government bailout.

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A spokesman for Lufthansa declined to comment.

Shares of the carrier group, which also includes Swiss, Brussels Airlines and Austrian Airlines, have gained around 5 per cent since the start of the year.

Shareholders granted approval last week for a potential capital raise of €5.5 billion.

Lufthansa had previously said it would not use the full amount available, and instead aim for the “smallest possible” increase.

Lufthansa continues to lose money as the coronavirus pandemic restricts global travel. The airline reduced its monthly cash drain to €235 million in the first quarter, and expects that figure to narrow to €200 million per month in the current period, helping it to a smaller operating loss than the €5.5 billion posted last year.

The interest rates on the silent participation, a debt-equity hybrid instrument that does not dilute shareholder voting rights, are set to rise over coming years.

Reuters reported earlier on the size of the planned deal. – Bloomberg