May 25, 2024

Ryanair challenges Lufthansa bailout

By Bev Fearis, published 27/05/20

Ryanair has vowed to appeal against a €9 billion rescue package agreed by the German Government to help Lufthansa through the pandemic crisis, arguing the deal is ‘illegal state aid’.

Under the terms of the agreement, the German Government will take a 20% stake in Lufthansa with the intention to sell the investment by the end of 2023.

The deal has yet to be approved by the airline’s shareholders and the European Commission.

Ryanair said if the support package is approved, it would further strengthen Lufthansa’s ‘monopoly like grip’ on the German air travel market.

CEO Michael O’Leary said: “Lufthansa is addicted to State Aid. Whenever there is a crisis, Lufthansa’s first reflex is to put its hand in the German Government’s pocket. While most other EU airlines can survive on just payroll support schemes (for which we are extremely grateful), Lufthansa claims it needs another €9 billion from the German Government, €1 billion from the Swiss Government, €800 million from the Austrian Government, and €500 million from the Belgian Government as it stumbles around Europe sucking up as much State Aid as it can possibly gather.”

The European Commission has already agreed a €7 billion bailout of Air France-KLM from the French Government, with further assistance pledged by the Dutch Government.

In the UK, the Government initially said it would treat airlines on an individual basis but urged them to explore the possibility of raising funds from other sources. This week it announced plans to bail out industries most severely hit by COVID-19 under a scheme called Project Birch. Sectors deemed most at risk include aviation and aerospace.

Yesterday (Tuesday), airline body IATA released analysis showing the airline industry’s global debt could rise to $550 billion by the end of 2020, a 28% increase over debt levels at the start of the year.

It said $67 billion of the new debt is composed of government loans ($50 billion), deferred taxes ($5 billion), and loan guarantees ($12 billion).

“Government aid is helping to keep the industry afloat. The next challenge will be preventing airlines from sinking under the burden of debt that the aid is creating,” said Alexandre de Juniac, IATA’s Director General and CEO.

“Over half the relief provided by governments creates new liabilities. Less than 10% will add to airline equity. It changes the financial picture of the industry completely. Paying off the debt owed governments and private lenders will mean that the crisis will last a lot longer than the time it takes for passenger demand to recover.”