What's going on?
Brought down to earth by the coronavirus pandemic, Lufthansa agreed to a $10 billion government package earlier this week that’ll rescue the German airline from bankruptcy.
What does this mean?
Lufthansa’s been left reeling by coronavirus: it’s losing more than a million dollars an hour as passenger numbers languish at just 1% of their usual capacity. And even after grounding most of its aircraft and shutting down its budget airline, Germanwings, in April, the airline was still in desperate need.
Enter the German government, which earlier this week agreed to a $10 billion rescue package – in a mix of loans and investments – that’ll give the country an initial 20% stake in the company. The deal will help save 10,000 jobs, but it’ll also likely face heavy pushback: rivals like Ryanair are already arguing that propping up airlines with state cash violates the European Union’s principles on fair competition…
Why should I care?
For markets: The seatbelt sign is on.
Lufthansa’s share price rose more than 10% in the two days after the rescue package was announced, and other airline stocks joined its ascent on Tuesday. Not only are other governments starting to loosen their own lockdowns, after all, but the deal comes less than a month after the French and Dutch governments pledged their own $12 billion rescue package for Air France-KLM, another of Europe’s major airlines.
The bigger picture: Too big not to fail.
According to airline trade group IATA, airlines have received more than $120 billion in “life support” from governments this year – and since more than half that aid has come in the form of debt that needs paying back eventually, the group’s worried. IATA’s predicting the industry’s total debt to be 30% higher by the end of the year, and reckons lots of airlines could end up collapsing eventually anyway (tweet this).