• The crisis has grounded 95% of Lufthansa’s fleet, or about 700 aircraft
  • Under the bailout, the government would receive two seats on Lufthansa’s supervisory board
  • The bailout package would also be subject to approval by the European Commission

Germany’s national flag carrier Lufthansa said it is close to securing a 9 billion euro ($9.9 billion) bailout from the government that will allow it to survive the covid-19 pandemic.

The crisis has virtually shut down air travel and grounded 95% of Lufthansa’s fleet, amounting to 700 aircraft.

Of that bailout amount, 3 billion euros ($3.3 billion) would be provided by the state-owned KfW development bank, with the remainder coming from the government's economic stabilization fund, which was established to assist companies through the pandemic.

In exchange for the funds, the German government would acquire a 20% stake in Europe's second-biggest airline – thereby making the state the largest shareholder.

The government would also obtain a convertible bond equal to at least an additional 5% stake.

In a filing with the Frankfurt Stock Exchange on Wednesday night, Lufthansa said its talks with government officials had entered an "advanced stage."

Lufthansa and the government have been trying to hammer out a deal for weeks, but the main roadblock has been how much control of its operations the airline is willing to cede to the state.

Executives at Lufthansa had expressed concerns that other airlines that received bailouts had less stringent conditions attached – which might make Lufthansa less competitive in the future.

The airline also said that, upon completion of the deal, the government would receive two seats on Lufthansa’s supervisory board, but that they would only exercise full voting rights in exceptional circumstances – for example, to help block a possible takeover by a third party.

Lufthansa further said that any bailout plan would likely impose certain other conditions on the airline, including a waiver of future dividend payments and restrictions on management compensation.

"The German government is in intensive talks with the company and the EU Commission. A decision is expected shortly, but I cannot give any details about ongoing talks,” German Chancellor Angela Merkel said late Wednesday in Berlin.

Government representation on Lufthansa’s board has divided Merkel’s coalition government. Pro-business lawmakers from the chancellor's conservative Christian Democrats have rejected such a measure, citing that government should not interfere with the airline management’s decision making.

However, the center-left Social Democratic Party of Germany, or SPD, wanted a bigger stake in the airline, thereby allowing the Berlin government to influence Lufthansa policy over such matters as job cuts or meeting environmental targets.

"The state is not some idiot that will just hand over money and have no say after that," SPD deputy Carsten Schneider said earlier this month.

The bailout package would also be subject to approval by the European Commission, the executive branch of the European Union.

Last week, Lufthansa said it plans to restart flights in mid-June.

Meanwhile, the airline is hemorrhaging money.

In the first quarter, Lufthansa posted an operating loss of 1.2 billion euros ($1.3 billion) and warned the loss would widen in the second quarter. The airline is burning through 800 million euros ($880 million) each month.

On May 5, Lufthansa Chief Executive Officer Carsten Spohr said the company had about 4 billion euros ($4.4 billion) in cash left.

Lufthansa also plans on running a more streamlined operation in the coming years – the airline said it expected 300 of its aircraft to remain grounded next year as demand is expected to be sluggish, with 200 remaining out of commission into 2022.

As such, more job cuts at its maintenance and catering businesses were likely.

“In the summer of 2023, when we will hopefully will have put this crisis behind us, we will still likely have a fleet that is 100 aircraft smaller,” the board said.

The airline has also been engaged in discussions with Airbus and Boeing (BA) on postponing future plane deliveries.