During the pandemic, airlines were massively supported by governments, especially in Europe. This has sometimes been criticized by a part of the public opinion opposed to air transport or simply opposed to state interventionism.
But the German case shows that this could also be a good move.
The challenge of COVID debts for airlines
Today, the reimbursement of state aid by the airlines is at the center of the debate. First of all, because a priori a debt is repaid, then because some people reproach the airlines for not having made the best use of it (in the USA in particular, they are reproached for having used it to pay redundancy payments instead of preserving jobs) but above all because they are a burden that prevents the European airlines from moving forward.
State aid and unfair competition
In Europe, the granting of such aid has been vigilantly monitored by the authorities. The idea was that these aids should serve to save the airlines and not constitute a form of unfair competition allowing them to finance past debts or future investments.
Thus, the airlines that received them were not allowed to invest in another player in the sector until they had repaid them. At the time, many may have thought that given the context, it would take forever for the market to consolidate, but this was a mistake.
The recovery has been rapid and the consolidation movement has resumed, all the more so as some players have emerged from the crisis in a weakened state and thus represent good opportunities for the European majors (IAG, Lufthansa, Air France-KLM).
However, it was impossible for them to move until the loans were repaid.
The race for reimbursement
Lufthansa Group and Air France KLM have entered into a race for repayment, a race that is all the more crucial because the Italian government wanted to sell ITA quickly. IAG, on the other hand, has received little or no aid.
Lufthansa was the first to achieve this at the end of 2021. Air France-KLM is taking the same path, but it is taking longer: the group entered the crisis with its finances in worse shape than Lufthansa’s and has drawn more aid than its rival.
Moreover, if Air-France KLM has been chosen to buy ITA, it is as a minority player in a bid led by an investment fund, as the debts have still not been cleared.
The same question will arise for the takeover of TAP tomorrow where the same two players are competing, but that’s another story.
As for Lufthansa, the German government, which had taken a stake in the airline to control the use of funds, has just, in accordance with its engagement, sold all of it. It is therefore no longer present in the capital of Lufthansa Group.
German state makes 700 million euros in profits
The German state, which had acquired a 300 million euro stake in the Lufthansa Group, has sold its shares for more than a billion euros. This means a net profit of 700 millions euros for an investment of less than half.
The operation has been very positive for the State and the German taxpayer, but this is logical: the shares were bought at the height of the crisis and then sold at the height of the recovery.
So of course we can ask ourselves why it was not the same in France.
The rescue of Air France will not benefit the State
In fact the situation was totally different here, which explains this.
1°) The State did not lend directly to Air France or Air France-KLM nor through a vehicle such as the BPI, unlike the German State which was present alongside private banks. It just guaranteed loans made by private banks. But it could have asked for a right of review so that doesn’t explain everything.
2°)The French State is already historically present in the capital of Air France-KLM and this will not change. On the other hand, it was not present in the capital of Lufthansa and, this is where we see the difference in culture between the two countries, Lufthansa even thought of going bankrupt rather than accepting too much interference from the State. Of the three European majors, Air France-KLM is the only one to have the State as shareholder.
3°) The presence of the State in the capital of Air France-KLM is so high that an increase in the State’s shareholding would push it over certain thresholds, would mean a partial nationalization and would have been frowned upon by private shareholders such as Delta or China Eastern for example. If the State does not want to exit the capital, it does not want to increase its presence either.
It’s a pity because investing in the midst of the crisis would have paid off when the economy recovered. But that was not the option or the strategy chosen.
Bottom line
In exchange for its aid to Lufthansa the German state took a part of its capital which it sold with a nice profit of 700 million euros.
Image : loan repayment by thitikan chuachan via Shutterstock
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