MercoPress. South Atlantic News Agency

German government rescues Lufthansa taking a 20% stake in the company

Germany will take a 20% stake in Lufthansa. Germany will buy the new shares at the nominal value of 2.56 Euros apiece, for about 300 million Euros

The German government and the management of flagship carrier Lufthansa, which has been hit hard by the coronavirus pandemic, have reached a preliminary deal on a 9 billion euro (US$9.8 billion) bailout, two people close to the matter said.

The agreement is still pending approval by the German coronavirus rescue fund's steering committee, as well as Lufthansa's boards and the EU commission. The German economy ministry said that negotiations were in their last phase but have not yet formally concluded.

The carrier said last week it was in advanced talks on a deal that would involve the government taking two seats on its supervisory board, but only exercising full voting rights in exceptional circumstances, such as to protect the firm against a takeover.

Lufthansa has been in talks with Berlin for weeks over aid to help it cope with what is expected to be a protracted travel slump, but has been wrangling over how much control to yield in return for support.

Rivals such as Franco-Dutch group Air France-KLM and U.S. carriers American Airlines , United Airlines and Delta Air Lines have also sought state aid.

Lufthansa has said it expected conditions of the deal to include the waiver of future dividend payments and limits on management pay.

The plan includes Germany taking a 20% stake in Lufthansa. Germany will buy the new shares at the nominal value of 2.56 Euros apiece, for about 300 million Euros (US$327 million), a person close to the matter said.

The government will also inject 5.7 billion Euros in non-voting capital, dubbed silent participation, into the company. Part of this silent participation could be converted into an additional 5per cent equity stake.

The silent participation will carry a coupon of 4% in 2020 and 2021, increasing to 9.5% by 2027 to incentivize a fast repayment, the person added. Separately, Lufthansa will get a 3 billion euro loan from state-backed bank KfW.

The company and the competition watchdog are still discussing which slots at which airports Lufthansa will have to waive as a remedy to ensure the bailout does not hamper competition.