Airline may be about to file for bankruptcy

One of the world’s largest airlines, Lufthansa, could be on the brink of collapse as the airline desperately tries to negotiate a $13 billion rescue package with the German government.

The airline entered “intensive negotiations” late last week in a bid to sustainably secure the group’s solvency, as it reported a €1.2 billion ($A2 billion) operating loss in the first quarter.

But if the airline fails to secure a bailout, Lufthansa will be potentially consider a court protection (known as a Schutzschirm protection) as a last resort which would essentially shield the airline from creditors for three months while restructuring finances and management.

For the airline to receive the protection, it will need to be approved by a court and an application submitted before the company is no longer able to pay bills.

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According to the Financial Times, the airline is burning through $1.6 million per hour, forcing the airline to seek funding from governments in Brussels, Vienna and Bern.

Lufthansa currently transports only 1 per cent of passengers compared with a year ago in Europe. According to Reuters, some 100 aircraft of its 760-strong fleet could be idled and 10,000 jobs are in danger, CEO Carsten Spohr said last week.

It is understood the airline won’t be able to survive without state aid, but there is a chance it may knock back a financial lifeline from the German government for one reason.

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While current negotiations haven’t been made public, sources say that Germany is willing to offer up to $15 billion in aid, but the airline is showing resistance because of the terms attached to the offer.

According to reports, the government is seeking at least a 25 per cent stake in the airline in exchange for the bailout, and would have at least two seats on the company’s supervisory board.

It is understood the funding would come in the form of a capital increase and loans, which would have relatively high interest rates attached at 9 per cent.

The Lufthansa Group, which is considering all possible options to stay afloat, isn’t satisfied with those terms, especially in giving the government a say in how the airline is run.

While German leaders have promised they will not allow the airline to fail, it is understood bosses at the Lufthansa Group are concerned that accepting the proposed bailout – and attached terms – would limit the airline’s ability to compete with rival European airlines.

Because the German government would want seats on the board in exchange for state air, Mr Spohr fears other governments will also demand board representation in return for state aid, according to The Telegraph.

The Austrian government has repeatedly said it would require job guarantees and an assurance that Vienna will remain a transfer hub in return for financial support.

Earlier this month, Virgin Australia announced the airline would go in to voluntary administration after failing to secure a bailout.

Last week the troubled airline announced accounting firm Deloitte had been appointed as administrators to help it restructure amid a debt pile of $5 billion and a collapsed cash flow due to the coronavirus crisis.

The airline’s CEO Paul Scurrah said the decision came after the Federal Government refused a $1.4 billion bailout to help the airline survive the pandemic.

Mr Scurrah said COVID-19 had triggered the worst aviation crisis in history.

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