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Planes of German air carrier Lufthansa are parked at Frankfurt airport in Frankfurt, Germany. File photo: REUTERS/KAI PFAFFENBACH
Planes of German air carrier Lufthansa are parked at Frankfurt airport in Frankfurt, Germany. File photo: REUTERS/KAI PFAFFENBACH

Deutsche Lufthansa repaid the last of its €9bn bailout ahead of schedule, paving the way for the German government to sell its stake in the airline group for a significant profit.

A recovery in international travel and successful refinancing measures allowed the airline to return the taxpayer cash, it said in a statement Friday. The state stands to net close to $1bn in profit once it sells its 14% holding over the next two years. 

“It was good business for the treasury,” German finance minister Olaf Scholz said in a statement. “Smart politics pays off.”

The outsize profit marks a victory for Scholz, who is poised to succeed Angela Merkel as chancellor once coalition negotiations conclude. He and his deputies drove a hard bargain in negotiations with Lufthansa, mindful of bank bailouts during the financial crisis that shouldered taxpayers with heavy losses.

For the airline, the repayment marks the latest step toward a return to normal after the coronavirus pandemic grounded much of its fleet and pushed it to the brink of bankruptcy in 2020. Lufthansa expects to restore 70% of its pre-pandemic capacity in 2022 as the crisis wanes and intercontinental routes reopen.

Still, the airline has borrowed heavily from private creditors to replace the aid. Its plan to secure pay cuts for its pilots has met with resistance from the powerful cockpit union. Lufthansa reduced its fleet and committed to investing less in new aircraft, moves that could leave its western European empire vulnerable to cash-rich discounters like Ryanair and Wizz Air.

“Many challenges remain,” CEO Carsten Spohr said in the statement. “Our ambition is to strengthen our position among the world’s leading airline groups. To this end, we will consistently continue the restructuring and transformation.”

The rescue saved more than 100,000 jobs, Lufthansa said. The debt secured in financial markets carries a lower interest rate than government loans that were set to rise steeply. State oversight also comes with strict restrictions on M&A activity and executive pay.

Nifty profit

Germany purchased a 20% stake in Lufthansa for €2.56 a share last year, a nominal price that was lower than its market value at the time. It sold part of the holding in late summer at a profit.

At current prices of about €6.67, the state would realise an added gain of about €700m with the sales. If Lufthansa’s stock recovered to 2019 highs of about €16, taxpayers would reap a €2.4bn windfall.

The remaining €1bn in loans were paid back on Friday, and the company cancelled the unused part of its aid package, Lufthansa said. The government can start selling its holding in six months, with a full exit seen by October 2023. 

Once the state exits its shareholding, Lufthansa will be free to partake in the consolidation that analysts expect to shape European aviation in the wake of the pandemic.

The company, Europe’s biggest airline group, has in the past been linked with bids for Scandinavian Airlines SAS, Portugal’s TAP and Alitalia successor Italia Trasporto Aereo, all so-called national flag-carrier airlines like Lufthansa’s Swiss and Austrian subsidiaries.

Bloomberg News. More stories like this are available on bloomberg.com

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