German government to bail Lufthansa out of bankruptcy with nearly $10B state aid | Hacker News Reader

German government to bail Lufthansa out of bankruptcy with nearly $10B state aid

businessinsider.com

115 pointsZeljkoS171 comments

The German media does not have this story (yet?).

The best I can find that the German govt made an offer for a EUR 9B bailout, which would be (in large part) a credit which would lead to a commitment of EUR 500M per year in repayments (which the Lufthansa doesn't want), and the govt wants two board sets (which the Lufthansa doesn't want).

It is also reported that the Lufthansa is looking into opening a "Schutzschirmverfahren" (special case of bankruptcy law, which you can file when you're not yet insolvent but soon might be, aimed at allowing a company to become viable again mostly by itself), has EUR 4.4B in the bank, and wants to have a final decision by end of May. (from a story published less than 1h ago in SZ).

Maybe BI knows something everybody else doesn't...

Frankfurter Allgemeine reports seem to agree with your statements and also see 1-2 week timeframe for further negotiations. Strange that BI somehow has the scoop.

https://m.faz.net/aktuell/wirtschaft/lufthansa-erhaelt-erste...

Can't edit above post anymore, here's a small update.

The Suddeutsche Zeitung has a similar story to FAZ where there have been negotiations between gov and Lufthansa, but that the two parties are far apart and negotiations are not close to an end. Timeframe for finalizing negotiations is said to be before the end of May. SZ seems to have some insider sources too, so now I am really in doubt about the legitimacy of the Business Insider reporting.

https://www.sueddeutsche.de/wirtschaft/schutzschirm-lufthans...

It's like the Chapter 7 vs Chapter 11 for our friends in the US.

I have always difficulties understanding these kind of statements:

"appointment of civil servants or politicians to the supervisory board was unacceptable in the eyes of Lufthansa's executives."

Like, how is that any of executives' business who is on the supervisory board? If they do not like the money, find other investors, easy as that? It is almost like "ownership" is not a concept that should be associated with corporate shareholders at all, because it seems that the relationship between shareholders and corporation has very little resemblance of actual ownership.

Same thing applies to "hostile takeovers". What on earth is that? How come executives of the company I have shares at think they are anyhow entitled to have an opinion about me selling my shares to whom I want? None of their business whatsoever. If they want to have opinion, offer me better price.

1. In a dual board one could describe members of both boards as executives. I can quite understand supervisory board members to be unwilling to work with political agents on their board if they feel the firm's not lost yet.

2. Hostile takeovers are hostile to current management. You are obviously free to do what you want with your share. It's the firm treating the takeover as hostile. Shareholders are free to vote in / remove executives in order to change the way a takeover is perceived.

Does it mean that every german will have to pay about $10B / 80m = 125 euros for that ? So it means that they'll have, for example, to wait a little longer to buy their next phone, or lunch ? (I ask the question here because that's the kind of reasoning I read in the press but I'd like to know if it's as simple as that)

Nope. Because they have already paid all of this in taxes. It means, that the 10 bn won't get 'invested' by the government in another project, e.g., welfare benefits, infrastructure, health, or education. Alternatively, it means: nothing of all of those, but inflation will rise an additional 0.0001% (if the funding source is printing money vs. using tax payer money)

There is no direct link between printing money and inflation. But 0.0001% seems too optimistc.

For example the EZB has about 5 Trillion Euros out. 10B more would increase the amount of EZB money by 0.025%.

> There is no direct link between printing money and inflation

what....

Academically, there is a link, but it has not been born out in recent times by central bank policy and the resulting economic observations.

https://www.frbsf.org/economic-research/publications/economi...

Airline is the infrastructure tho, cheap air travel is available throughout EU. If you remove that, economy will take major hit. There is hardly any reading block with cooperation like EU. You fly from France to Italy and work with people there then you fly to Switzerland and demonstrate your product their and then you deal with marketing agency in UK to market your products at global level. It becomes inefficient without cheap air travel.

That sounds like an ad for some lifestyle product, not reality. Frequent in-person meetings aren't that important to the economy. It's cheap, quick and simple transport of goods throughout Europe that is important, not some executive traveling to four countries in an afternoon.

Lufthansa is never close to cheap flights...

Sure the flights under the Lufthansa brand are premium. But they do have other brands like Germanwings which are more affordable (though barely I will admit).

Yes, quite the contrary. It's one of maybe 10 five stars airlines. It's an elite airline.

I was under impression that executive class adds most value in a company which might be the target market of this airline company.

It seems I've been proven wrong already.

> Nope. Because they have already paid all of this in taxes. It means, that the 10 bn won't get 'invested' by the government in another project, e.g., welfare benefits, infrastructure, health, or education.

Knowing the German government, I wouldn't be worried about welfare and healthcare (they're too important to get the votes).

But you're right about infrastructure and education. You can throw defence and internal security with that.

The bailouts that are happening now will increase the state debts, so no, they did not pay all of this in taxes already.

Are you kidding. We citizen will earn money by that. Germany will borrow 10 billion with negative interest and invest in a solid company at a low point.

Now you can argue, that the flight sector will never recover, which I agree too, but that will not change anything. Lufthansa is a very solid airline. There will be hundreds of small airlines leaving the market with the Lufthansa to pick the market shares up.

And increasing the ticket prices Germans pay with their own money through the continuation of their government-sponsored monopoly.

Well.. Lufthansa does not have a monopoly in Germany. We have solid railway infrastructure within Germany, other Airlines servicing us in all directions. Lufthansa will have to offer competitive prices.

However, yes, flying will become more pricy. Around the world. We will see lower passenger numbers for many many years, mid-term many have to financially recover, long term environmental and viral concerns will be a permanent affect on tourism. Increased digitalization will reduce business travel. And all of that while the costs of the airlines increases due to stable fix costs and increased security/hygiene/... regulations.

So yes, flying will become more expensive. But not due to government sponsorship and monopolies (for LH in Germany).

You're right about the railways and other European railways. But DB is constantly late. A friend of mine has a BahnCard 100 but gave up on the train and now flies-- Dusseldorf to Berlin has taken him up to 9 hours in the past with delays.

And most economists would agree LH definitely has a monopoly on the German market, especially for international travel: https://www.neweurope.eu/article/lufthansa-reaps-home-market...

It also gets special tax treatment from the government versus Easyjet and Ryanair: https://pointmetotheplane.boardingarea.com/germanys-climate-...

I'm not sure whether you are serious. But if you are: There are not many people who agree on your opinion, otherwise the share price would be way higher.

Airlines have a very low profit margin business. They earn very less for the amount of money they invest in the product. Therefore, capitalists are not very interested in the dividend. It is also a high risk business as the market is very volatile (see current crisis) and have a high merger/fail rate.

Lufthansa is one of the top carriers in the world with a solid infrastructure and network. The eliminated many competitors by just letting them starve themselves in low prices while Lufthansa never compete. I personally do not doubt their value. But the overall market is not an investment friendly one.

I guess, if they started paying now. But the (high) taxes have been collected for so long the state has some considerable savings by now...

There are no savings on the federal level (or any level, really). Federal, state and county level are generally driven by debt and steadily increasing their budget due to mission creep.

Haha. Really. NRW is bankrupt by now.

Not only Germans but whole EU. The way EU works is by letting monopolies in a few west European countries expand their market to east and capture more value from everywhere.

Yes, East European companies can also do that but usually, there is first mover advantage and other policies at local level which influence the ability to form monopoly through investment and expansion.

I'd love to know why downvoters disagree, if you start a competition between companies where some companies have better technology, state help or finance and put them against companies who don't have all that, yes big companies are more likely to become bigger if you combine the market where all these companies operate.

Perhaps because the claim "The way EU works is by letting monopolies in a few west European countries expand their market to east" is clearly ludicrous as a summary of how the EU works?

I mean, the EU - ignoring the name changes over the years - had existed for over 30 years before the fall of the Iron curtain and nearly 50 years before admitting new members from the the East. The idea that the whole thing was set-up and run based on the goal of economically exploiting recent entrants from the East decades in the future is simply silly.

If it didn't work this way, protectionism wouldn't exist.

There are various economics models which show Germany has benefited the most from creation of EU

Sure countries in middle of Europe and east are improving their baseline but it's nothing compared to what Germany has achieved.

Germany is effectively china of EU.

It's funny to see the same people who oppose China's currency manipulation are in favour of EU

I suggest you read this: https://www.conradbastable.com/essays/the-germany-shock-the-...

Hmm takes about 5 minutes of googling to find annualised GDP per-capita growth rates for countries.

Using the 1990-2015 period (because the numbers are directly available on wikipedia: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_growt...).

The following countries all grew by MORE than Germany: Poland (8.5%), Romania (6.9%), Lithuania (6.9%), Slovakia (6.7%), Czech Republic (6.6%), Estonia (6.4%), Ireland (6.2%), Latvia (5.8%), Hungary (5.5%), Malta (5.1%), Bulgaria (4.7%), Luxembourg (4.6%), Norway (3.9%), Portugal (3.6%), Slovenia (3.3%), Croatia (3.1%), United Kingdom (3.1%) and the Netherlands (3.0%).

Germany's rate for the same period was 2.9%.

So you're theory that Germany has benefited the most from the EU - at least for this period - is clearly false.

Germany started from much stronger position, so grow rates don't tell us the whole story.

Compare the living standards, so you want to argue Poland with 8.5% growth has higher living standards than Germany?

"So you want to argue Poland with 8.5% growth has higher living standards than Germany" - why would I want to argue that?

I mean I've said absolutely nothing about living standards and neither did you? Why not simply read what I've written instead of inventing arguments for me to make?

I've provided some basic numbers and references which directly contradict your claim that Germany benefitted most from the structures of the EU.

I give up. I tried to explain some reasons why you might be getting downvoted but it's been a waste of time.

The link is a rambling mess. What exact are we supposed to learn from it?

Germany was against monetary union in Europe, they saw it as giving away their ability to be fiscally conservative. This is of course what happened with the ECB finally printing their way out of the Euro debt crisis.

The fact that Germany retained their manufacturing capacity and still takes pride in it is the reason they are an export economy. The economics of the Euro are just working for them rather than against them.

Other countries threw away their manufacturing capacity for a service sector, most notably Britain which centralised their economy in London.

I remember seeing an interesting talk on the Target2 system, which suggests a part of those intra-EU German export achievements may just amount to risky credit anyway :

https://youtu.be/q2QYaJGgtw8

One thing that I think the business world has finally learned during the COVID-19 social distancing is that business travel isn't nearly so important as we had imagined. And attending conferences was always fun but it's been amazing to watch how fast conferences have switched to an on-line format (well ... the technical ones that I would attend).

So it's my opinion that the airlines, hotels, conference centers and taxi/ride-share companies are in for a rude awakening. Tourism might increase when this isolation ends, but I think there's going to continue to be a serious contraction in the market segments that support business traveling. And when you combine it with the financial damage done to businesses during the pandemic, they've got two fiscal reasons for eliminating business travel.

At least in academia, people usually don't go to conferences to attend the talks - they are uploaded on youtube and you could watch them from home. People go because they are good networking events. That is something which you can't really do online.

Edit: of course, a minority of attendees are there to present their work, which can indeed be done online.

In my academic field (computer science), people go to conferences because you have to present in person the research that you publish there. The question of whether traveling to the conference is worthwhile at all is irrelevant. With conferences moving online, the question starts to have some importance and the answer isn't so clear.

Exactly, so many people are missing the point that so many of these events can't just be online and then you call it a day.

It's about building relationships and connections. Not just watching presentations.

I'm not disagreeing that there are networking opportunities ... I work for a university and have been going to a conference or two a year since I started here simply to meet up with people. I think we'll find a way to recoup some of that value remotely and I think that the business will accept that there is some loss in networking rather than pay for the trips.

Throughout most of the '90s and '00s, I traveled between a week and two weeks a month for work. There was a huge decline in the "luxury" of flying around the world after 9/11 that's continued to get worse and worse since. Flying anywhere these days is simply a chore.

Meeting people face to face is insanely valuable.

Here is one example from personal experience. I met someone at a conference in Silicon Valley years ago. Later on I’m doing research for a project and trying to find subject matter experts to lead the effort. In my research I find 15 people who are qualified. Two respond to my attempts to contact them. One dismissed me and the other is that person I met at that conference. He tells me that the only reason he’s talking to me still is we met at the conference.

We started working together and it’s been a fruitful endeavor.

The moment in person conferences are safe again they will explode. Everyone will want to see other people again,

I assumed it was important as a power game thing (if you care about my business so much come out here and stand in front of me). When this is all over the people who say "why do you need to fly me out there, we teleconferenced for 2 months" will get slowly written out of the e-mail chains.

I've got a friend who now works from home. Took them all of 3 days to set up. And yet they want her back in the office as soon as possible. Mind boggling to be honest. She's saving so much time and money not commuting and still does the same amount of work.

She says she doesn't like it though, the office environment is better. So there's that.

In fact, my worry is that this event will actually impede WFH. You've got a bunch of people who don't want to WFH, or who have kids at home or other handicaps; the productivity hit will be tremendous, and bosses will feel this.

Sure, we can rationally explain it away, but I doubt any of that will stick to a boss who was already on the fence or somewhat against WFH. They will just see their biases confirmed.

My institution has been trying to bring people back in some format since day 1.

My institution also has an administration that isn't comfortable with only measuring results over actual physical time spent in seats during a project.

I know correlation doesn't equal causation, but I'm betting there's a link in this one.

You probably don't get that conferences exist for personal interaction, not just to present technical information. In fact I believe that business travel is what will support the travel industry, since most people will be afraid to take their families on travel without a clear necessity.

I disagree I think people will go on a business travel binge when they're able to.

I am interested to know how you have found networking and informal discussions surrounding conference talks.

Technical conferences switch to videoconferencing software. But they got much much worse in the process.

I think people are going to find the opposite, that networking events are even more crucial to growth (evidenced by research), and the ones who didn't realize this before will now fight for the opportunities that come up in firms.

Surprised no one has said it so I will: conferences provide a business deductible way to have a nice vacation. Witness how many conferences are in Vegas/Hawaii etc.

Objectively, this is true. Whether the intent is to actually have a conference or not, the real outcome is that employees are A) in a different location and B) the trip is written off as an expense.

Objectively. It is impossible to say that this is not what is happening. It's like saying "The Sun does not shine." It absolutely does shine. We don't know what the motive was for it to shine, but objectively, it is shining.

In India you don't get input tax credit for travel/conferences afaik.

Doing it wrong. Your business buys the conference tickets, travel, and some of the lodging. You stay for an extra week. All you pay for is the hotel.

Business expenses offset revenue reducing profit and in turn taxes.

> "attending conferences was always fun"

Well it's also because there were always disadvantages we forget about: hours upon hours of travel, going on your own, sleeping in unfamiliar rooms, not to mention the cost of it all. Going to a remote place for a few days isn't so fun when you remember all the hours spent in an airplane seat to get there and back.

> hours upon hours of travel, going on your own, sleeping in unfamiliar rooms

How negative those 'negatives' are depends a lot on the individual. Some people prefer routine and freak out when they stray from the routine. But other people find it exciting to stray from routine.

TBH i expected this to happen some time. I wonder how much funding agencies like NIH , ERC etc spent on travel grants per year. From my experience it s a lot

There's still a huge difference between meeting people in the halls at conferences or working with them during a seminar-visit and looking at video-conference screens.

This. I think if anything, there will be a minor bump over the next year or so, but it won't be long until people find out that really connecting still requires meeting in person. We are social creatures after all.

Not sure if huge. i ve enjoyed lectures more, and there is a lot of interaction in breakout chat rooms , probably more that RL conferences

Also, conferences easily scale to thousands now

This might be true but also sounds like it's spoken from a very privileged position.

There's probably (tens of?) millions of workers around the world separated from their families. It's not only about tourism and business travel.

> This might be true but also sounds like it's spoken from a very privileged position.

What does "privilege" have to do with this conversation? The GP's comment is a prediction about business travel. He made no such prediction about personal travel.

> It's not only about tourism and business travel.

It is for the hotels and airlines. They make most of their profits on business customers who don't have time to count pennies because they have work to do. When I visit family on the other side of the planet the total cost is often times less than the cost of a week long business trip to New York.

Heck, we've been hosting online improv shows. It's not the real thing but it's fun. Honestly surprised by how quickly we've adopted to the constraints.

Not going to happen. You can't do too many deals of any kind just over video chat. You will just loose out to ppl who make the trip to sit hit and hand hold customers/partners/employees/bankers etc.

China and South Korea have already started issuing spl permits for biz travellers. Some kind of new system being cooked up there that will probably be replicated all over.

Airlines/Tourism/Hotels etc are def going to take a big hit. Many will fold but they will be back in a year or two or however long it takes the vaccines to show up.

Yahoo finance says their market cap is 4 billion [0] and yet they are getting a bailout worth 2.5 times their market cap. That's crazy.

[0]: https://finance.yahoo.com/quote/lha.de/

They are trading at a really small fraction of their book value, currently 0.37[1]. In addition, their book value is being weighed down by debt.

I don't know why people fixate on market cap in cases like this.

[1] https://finance.yahoo.com/quote/LHA.DE/key-statistics?p=LHA....

Are we sure that the "market cap:book value ratio" is not an artifact of a) the stock price being marked down by the market, while b) their (e.g.) planes have not been explicitly revalued in light of the lower demand?

That's probably why the board doesn't shrug and vote to liquidate assets and pay shareholders more than their shares are worth.

Because it, in ideal terms, is how much it costs to buy the company outright?

I think Matt Levine has pointed out before that the amount of money it would take to keep US airlines going was likely to be more than their pre-Covid market cap. It's a big reason why the idea that they should just have saved up enough money to not need bailouts instead of paying out to shareholders is a non-starter; the value of the airlines to shareholders is less than the amount it would cost, because air travel is so cheap and low margin. In some very real sense, the profits from not saving up have already been socialized - everyone who travels by air or buys goods shipped that way has benefited from it - and so there's no alternative to socializing the losses too if we want airlines to exist after this.

Socializing the losses...I like that turn of phrase :-)

That phrase (the full form of which is "privatising the profits and socialising the losses") is often used in criticisms of bailouts of failing companies. This practice even has a name: lemon socialism.[1]

1. https://en.wikipedia.org/wiki/Lemon_socialism

Got a link to Levine's post?

https://www.bloomberg.com/opinion/articles/2020-03-17/the-go...

Could be even crazier:

Air France / KLM has a 2B cap; they are getting bailouts to the tune of 2B-4B (dutch gov., amount to be determined) + 7B (french gov.)

Also no the first time the government is bailing them out

For the sake of argument....

What happens if no airline gets any bail-out money? Do we end up with worse air travel in a year or two?

Yeah, it's the same line of reasoning behind farm subsidies: running a farm is risky, and if it's so risky that nobody does it, none of us eats... so we all chip in (whether we want to or not) to farmers to offset their losses.

Okay, so the farmer's risk is low crop yield, farmer bankrupt, no food, people die.

What about airlines? No passengers, airlines bankrupt, only very limited air travel possible, covid-19 ends, someone buys the airplanes from the asset auction, gives them an inspection, life continues as usual?

Solidarity is a whole other matter: if you can't work (because you're disabled or because you can't find work) you get money from the government. Doesn't matter if you're a farmer or airline employee, nor whether the company you worked for goes bankrupt. That's no reason to keep the companies alive, the people won't personally go bankrupt. (That might be different in developing countries, but those won't have 10B bailouts for nonessential businesses anyway.)

You end up with thousands of lost jobs right now, not just Lufthansa going under but all the businesses that serve them. That's why governments bail out companies.

We've ended up with thousands of lost airline jobs regardless. They aren't paying salaries while flights are grounded. Jobs are ultimately proportional to the number of people flying. More flights, more jobs.

I appreciate that people expect help, and I would be fine with money for airline employees. I'm skeptical that a bail-out does that much for jobs though. The jobs will (or won't) return as flights do, unless the airlines aren't operating.

I'm open to being convinced, the above question was genuine. I don't really understand the alternative. What happens in a no bail-out situation?

You end up with air travel only between major cities and a lot of government-owned airports which are empty and lose money.

That may be a point for the US, but not so much for Germany. We already only have air travel between major cities as the country isn't that big. We do have small regional airports, but they are mostly for hobbyists and private planes, not for Lufthansa & commercial airlines.

And maybe we reduce the total amount of travel, which is crucial to reduce our carbon footprint. These airline bailouts are a huge missed opportunity.

I also have yet to hear why we would want to save these companies in the first place.

I guess the money is flowing into banks' coffers, paying off airplanes? Or are there other costs they're currently making? What is free money going to do for the airline, pay employees that have no work to do anyway? Wouldn't it be more efficient to give them the money?

I don't care if Lufthansa goes bankrupt and someone else buys their planes for pennies on the dollar, gives them an inspection after covid-19, and life continues as usual. How are these 10e9 spent other than throwing it into a black hole?

There's probably more to it than I know, but I have yet to hear the reason we're keeping those businesses alive.

Meanwhile American Airlines needs like 12 trillion dollars to keep the lights on. Can't wait for the day where we let that pathetic airline fail.

The world didn't end when Pan Am failed, although many thought it would. No reason to prop up shitty businesses that continue to make bad decisions, I don't care how large they are. If there is demand for their service supply will appear. Rewarding bad decision making with artificial demand is degenerate.

And it also didn't end when TWA, Eastern Airlines, Braniff or Tower failed either.

It seems oddly perverse that these same American carriers who made billions by "nickle and diming" their customers with fees, penalties and taking basic services away now want a bailout from them. And it's hard to imagine a future where these same carriers don't go back to these same practices with a fervor in order to pay that money back or return to profitability.

What angered me even more they don't care. Recent news shows that "post"-covid they cram people like sardines and mask are optional because... there is no law forcing them.

Its such a terrible thing that multi billion dollar behemoth needs laws and regulation for every single damn thing, and can never lead as an example.

https://www.businessinsider.com/american-airlines-full-fligh...

No, we can't let them fail, that'd be capitalism!

Many major national carriers have national importance. So, no, they won't go bankrupt. Be it Lufthansa, Air France, Air China, or whatever.

Airlines like Ryanair and Wizz air might be different.

The difference is there isn't a predominant American legacy airline. AA is only marginally larger than Delta or United. Personally, having never lived in their hub or focus cities I have rarely ever flown them, and it's conceivable that the national value of LH or AF to their countries is greater than AA.

Several European countries allowed their former national airlines to go bankrupt or be sold to foreign owners.

Swissair, Sabene (Belgium) and Olympic (Greece) went bankrupt, I'm sure there are more.

Air France and KLM (Netherlands) merged a while ago, as did British Airways and Iberia (Spain).

Ryanair is Europe's largest airline by passenger numbers.

Curious what you mean by “national importance?” Do you mean ego/national pride, or that without a state provided carrier there would be no flights (unlikely for a Germany or Belgium, but possible for, say, the Marshall Islands or Togo)? Or that there is some sort of treaty-mandated interlink that requires a designated flag carrier (I know this last case was true decades ago, but I’m not sure the US even has one any more)?

Well, a country with a decent population size and a decent economy has to rely on air transport. Just now many countries flew out their citizens for example.

As far as I know, Lufthansa, like some other airlines, have a government owned golden share. https://en.wikipedia.org/wiki/Golden_share

In fact, if I remember right, an EU based airline is not even allowed to be owned by more than 50% of non EU share holders.

FWIW Australia is coordinating flights via foreign airlines in addition to QANTAS. In fact United is running more flights to AUS than QANTAS.

LH’s golden share was sold off in the 1990s (that’s in the article).

It's about control. During bad time like this Covid time, to haul cargo of national importance like masks or ventilators, passenger airline can be used if military one proves insufficient.

And how many countries will allow others military cargo planes in their border?

> And how many countries will allow others military cargo planes in their border?

In practice: most, including the US. How do you think that Russian aid was delivered last month? Not on a commercial flight.

Never mind that several smaller airlines of national importance went bankrupt in recent years because of EU regulation against state aid. Now that the big ones need it, the regulation is out the window.

Or it's because of special circumstances and we can stop pretending it's not.

Sure, nobody pretends it is not a special situation. It is still deeply unfair that when you need a bailout I don't allow it, when I need it, it is a special situation so it is OK.

The fact that the shutdowns are government-enforced is where the "it's capitalism" argument breaks down. The market's no longer free due to the government, so it makes sense that they would then try to offset the corresponding economic damage.

There will always be excuses. At the end of the day it's always capitalized profits, socialized losses.

Other sources are reporting only $1B. What is this article based on?

A tweet.

What does this mean in the context of state aid rules?

I'm quite worried that the EU's attempts to pick up the pieces of the economic carnage will clash with Britain's attempts. Inability to agree what counts as fair, will be a major block in any negotiation, and catalyse the economic partition of Brexit.

It means that the wealthy states get wealthier and the poorer get poorer. State aid rules have been massively relaxed, but the structural problems with the eurozone that mean Germany can afford to bail out their businesses like this and other poorer, worse-hit countries cannot are still there. I'm not sure Brexit is the EU-related economic partition we should be most worried about right now.

To the point.

The EU has temporarily removed state aid rules.

It means Brexit is stupid as the UK could've done whatever it wanted within the EU.

Well, they will work that up later. Money is transferred as compensation and everyone is happy.

Sadly, France and The Netherlands bailing out Air France and KLM last week, resp., forced the hand and diminished leverage for the German federal state I guess. I thought subsidies (to former state monopolies, of all things) was the one thing that need explicit consent under EU treaties. Now the people of DE, FR, and NL have to bail out a business that has no perspective to return a profit for the foreseeable future. Those who have protested against excessive air travel have to pay the bills long term (before coronavirus, flight shaming and "Fridays for Future" was a thing). I think this is a big missed opportunity to come up with a sustainable agenda to put a large electorate behind as a perspective out of the coronavirus economy crisis.

The problem is that these companies are so inefficient and the conserved the 30 years old business practices very well internally because the governments are keep bailing them out. Maybe it would be for the better to let them fall and start over. Build an airliner that operates effectively and widen the margin. There are other alternatives. For 10 - 15B EUR (estimated) we could connect the major European cities with a high speed train network powered by renewables / green energy. If we keep bailing them out this surely won't happen.

Your point brings up rail companies. I can’t see that they would be doing great right now, but a brief search doesn’t seem to show that they are circling the drain. I wonder why?

Not sure. The good thing about rails vs flight is that you can swap out the energy source. As your energy production gets greener your entire travel gets greener. With airlines, it is not even a remote possibility to change from kerosine based engines to electric or other green alternatives, Europe is very small and relatively dense. It would be a great way of commuting.

Shrewd negotiation by the CEO! Unlike, say, Volkswagen which has a significant stake owned by Niedersachsen and politically appointed board directors, Lufthansa will have two non-politician directors and no state veto.

A blocking minority sounds different than a "no state veto".

Question: Lufthansa's market cap is less than 5Bn, why is the German government not buying it for that amount, bailing it, then (hopefully) selling it in a decade when the situation improves?

France is bailing Air France, Germany is bailing Lufthansa, what does it mean for a company like EasyJet? Will it get bailed too or just crash due to governments helping some companies but not others?

After buying, they'd just have ownership but would still have to pump in just as much additional money. (Also you can't generally succeed in buying a company at its market cap value off the stock market becausenthe stock price goes up witj the demand)

Market cap tells you only the story of the equity. It doesn't include the liabilities.

The second is actually why noone really knows if this will go through. EU law may prevent most kinds of subsidies for national carriers.

Aren't state aids forbidden in the EU?

> A company which receives government support gains an advantage over its competitors. Therefore, the Treaty generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of ensuring that State aid complies with EU rules.

https://ec.europa.eu/competition/state_aid/overview/index_en...

Not at all. Even the ECB is buying company bonds since the financial crisis. The first "source" I found is in German only unfortunately: https://de.wikipedia.org/wiki/Wertpapierkaufprogramme_des_Eu...

Not for bailouts of struggling business (of special importance) if I understand it correctly.

How is it not unfair advantage?

If you let a business keep trying again and again, yes it offers unfair advantage over companies in other countries which might not have funds to support their companies.

One who flies the highest, falls the highest - these companies remain unaffected by small cities but when large one strucks these are getting bailed out.

Historically, only if the company wasn't French. Now it seems it's a free-for-all, unsurprisingly.

She who pays the piper calls the tune

That “she” is very forced.

Not at all, “she” is Angela Merkel. EU policy on anything, no matter what was previously written down, is whatever she wants it to be because Germany pays all the EU’s bills.

I see at least 4 people didn’t get it either, Americans are so insular.

I'm not American, it's just a common expression that starts with "he", not "she".

I guess I should've paid more attention to the context...

I assume it’s a Merkel reference.

Ye?

No need to be so formal!

https://www.spiegel.de/fotostrecke/cartoon-des-tages-fotostr...

>The company will take the money but the state won't get a say: this is a concise summary of what Lufthansa's Executive Board, headed by CEO Carsten Spohr, has been telling German politicians in the past few weeks.

That's awesome.

Create a crappy business, hire 130k employees, and get the state to pay for your failures.

At this point, I would be happier that they would just give the money to Google and Facebook which proved that they know a thing or two on creating value and sustainable business.

Obviously, airlines that have been doing fine (Ryanair, Wizzair?), won't get a dime which seems completely absurd. I did some quick googling and apparently Ryanair has similar opinion: https://www.bloomberg.com/news/articles/2020-04-24/ryanair-s...

Ryanair isn't 'doing fine', it's trying to force customers to accept vouchers instead of the cash refunds it is legally obliged to provide.

And the idea that Google and Facebook could do a good job of maintaining the profitability of an airline whilst being obliged to pay the capital costs of aircraft it's banned from flying is the epitome of Silicon Valley arrogance. Let's be honest, Google and Facebook haven't even adapted their core competency of connecting people digitally well to this crisis - otherwise there's no way people would be grudgingly using Zoom instead...

Can confirm, they have £1k of my money, which they've held on to for over a month already, and are refusing to refund. It looks like it will be several months at best before they refund it. I plan to do a chargeback in the meantime.

I get that Ryanair are in financial difficulties, but they can't expect their customers to bail them out, and are behaving unlawfully - I'm damn sure I wouldn't get away with it, so neither should they.

It's not only Ryanair - Air France are doing the same.

Air France also want the profits from KLM which actually runs well compared to AF. I wouldn’t mind if they split up again.

How is it a crappy business? It literally took countries shutting down their borders and people not traveling at all to bring them to their knees.

If an average person were laid off today and couldn't find a job for 1-2 months, would they go bankrupt? I think most people would be able to survive on their savings for a month or two. Companies should also be held to the same standard. They should have enough savings to survive this sort of disruption, just like a person would.

So yeah, if your company can't survive a month without revenue, it is a crappier than average business.

> I think most people would be able to survive on their savings for a month or two.

I think that is optimistic...

https://www.cnbc.com/2019/01/23/most-americans-dont-have-the...

They wouldn't go bankrupt, but surviving would require taking on debt.

Simple comparisons of companies to people is a world we long since left behind and are not really valid or useful except in very general rough senses.

That is a gross oversimplification. They are a huge multinational, even if they had saved their entire net income of over a billion euros it would not have been enough.

So unemployment insurance for people shouldn't exist?

Isn’t the German government taking a stake in the company again, as a state holding? They can sell that to recoup the investment later on. Letting it fail seems like it would drop GDP / tax revenue while pushing thousands onto social welfare.

It will be a net positive deal for sure. Germany can currently borrow money for free (they have negative interest) and invest when the shares of the company are super low.

Plus all the welfare stuff mentioned.

> Create a crappy business, hire 130k employees, and get the state to pay for your failures.

Uh ...

You'd rather Germany sink 10 billion Euros into an American company with barely any German jobs? Over 60k of those 130k are in Germany. If your plan is to cripple the economy, then yeah, absolutely, let all these companies fail and put all these people out of work for a situation that is in no way their fault and there's no feasible way for them to have prepared for such a drastic fall in revenue (for reference, their 2019 revenue was 36 billion Euros with a net income of 2bn).

Also, the value of Google and Facebook to society and the economy can seriously be questioned. They don't even pay taxes in Germany. They have zero benefit to the German economy.

Or let these companies fail and free up the air routes across Europe and create a more efficient company? I do not think that we need to keep bailing out airlines at all. Lufthansa has so many issues, starting with their website, internal problems (try to get an invoice from them), etc. Why do we (the taxpayers) have to pay for their failures of these airlines?

how long does it take to build an efficient airline?

why do you think it won't be a net positive for the tax payer? it's literally the government buying low and selling high when this is over.

Look at the Asian airlines. Many of them were built recently. My personal favorite is Air Asia.

https://en.wikipedia.org/wiki/AirAsia

Not long, when a massive airline recently went bankrupt and you can purchase their assets at fire sale prices and hire their now-jobless employees.

If you purchase their assets and hire their jobless employees wouldn’t you still have the same inefficient airline?

Presumable you could choose different routes and a different organizational structure

One thing that needs consideration is that the state will be taking care of these employees either way.

Either they pay Lufthansa or they pay for the unemployment insurance.

I normally do not like listening to the "blunt talking" Michael O'Leary but there's something extremely refreshing about an airline CEO stating bluntly that airlines should NOT be given bailouts by governments. The way he sticks to to Richard Branson (billionaire living in a tax shelter asking the UK government to bail-out one of his ventures) is particularly satisfying. It's just after 3:45 into https://www.youtube.com/watch?v=jtccxnEmfeM

The have a blocking minority controlled by a single entity. Why bordering with a seat in a board. And they appoint the board sear they got. Will be some consultant or state near industrialist. There are plenty of them.

If it was employing 130k for long time then perhaps it's not a crappy business.

Lufthansa: Where fuel surcharges don't match up with reality.

Thanks for your taxes.

You’re welcome.

Based on my experience with Lufthansa. That's an organization that should fail. If anything happens on your journey that is not average, the agents always blame you first.

>If anything happens on your journey that is not average, the agents always blame you first.

So basically every airline ever? Unless you are in the ultra premium VIP exclusive membership club.

United has treated me better than LH.

Just one of the many examples about how LH has treated me badly:

LH has to downgrade the plane from FRA-LHR, and people will get involuntarily denied. (LH Metal FRA-LHR, UA Metal LHR-ORD) I have 2 award tickets on my iterary. I offered to voluntarily reroute we can go United metal leaving Germany, the agent's response was "WHO TOLD YOU THIS!" They tried to offer both of us FRA->ORD direct via LH, I rejected. They ended up sending my bag to JFR later for me to claim missing baggage. (United had to fix their problem) My dad's bag arrived just fine in ORD.

Nah. Aeroflot, Turkish, Ethiopian and Delta have pretty good customer service.

Why the downvote? Have you used this airline? Aeroflot, Turkish and Ethiopian are in an excellent geostrategic position for the future.

I hold SU and TK gold elite, both just emailed me: Due to the crisis the both extend my gold elite status for 12 months/6 months without any need to accumulate miles to reach status.

Regarding US bailouts, can someone here more knowledgeable can help me understand how a company that has been fined tens of millions of dollars for ocean pollution, is not US-based incorporated, does not pay taxes on US soil, is in large part responsible for citizens obesity, and hire less than 0.17% American citizens, got bailed out by Feds to the tune of billions of dollars?

https://www.wsj.com/articles/how-fed-intervention-saved-carn...

Based on that article, they did not bail out Carnival. The Fed just bought a pile of other assets, which meant that investors had more cash to put into other investments like bonds for Carnival, driving their interest rates on the bond market down.

It was not directly bailed out. Action by the Fed just made all debt investment more attractive and that made more investors compete for such investment, lowering the interest rates Carnival (and every other corporation issuing bonds) faced.

The only reason an airline would need a bailout is if they have acquired significant debt that they are unable to service. If the airline is being 'bailed out' what's really happening is the airline's creditors are being bailed out.

The banks can afford to take a haircut on their debt and they can renegotiate terms. Of course, many of the creditors might be unsecured bond holders, which, I'm unsure of how the scam works in Germany, but in the US that effectively is some crappy fund you own in your 401k. So the banks smartly package and sell debt to idiots (common people with a pension/retirement account).

The government has to keep the worthless bond market afloat because everyone's invested in the scam. That helps keep interest rates low so the mega corporations can get free money from bonds that bear interest well below market rates.

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