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Law360 (June 25, 2020, 8:39 PM EDT) -- The EU's competition watchdog on Thursday approved a €6 billion ($6.74 billion) aid package from the German government to pour capital into Lufthansa's parent company in response to COVID-19.
The European Commission said the rescue package aligned with a temporary state aid framework to blunt the financial ravages of the coronavirus pandemic. State aid is subject to EU review to make sure companies stay on an even playing field within the European bloc.
Under the German plan, Deutsche Lufthansa AG, or DLH, the parent company of Lufthansa Group, will be recapitalized as part of a larger aid package that includes a state guarantee on a €3 billion loan that Germany plans to offer. EU regulators approved the loan aid on March 22.
"This substantial amount of aid will help Lufthansa weather the current coronavirus crisis, which has hit the airline sector particularly hard," EU competition chief Margrethe Vestager said in a Thursday statement. "But it comes with strings attached, including to ensure the state is sufficiently remunerated, and further measures to limit distortions of competition."
Vestager noted that, in particular, Lufthansa has committed to make available slots and additional assets at its Frankfurt and Munich hubs, where it has significant market power.
"This gives competing carriers the chance to enter those markets, ensuring fair prices and increased choice for European consumers," she said.
According to the EU, the plan approved Thursday includes €300 million equity participation through the subscription of new shares by the state, or 20% of DLH's share capital. On top of that, the airline giant will get silent participation of €4.7 billion with features of a nonconvertible equity instrument and €1 billion with features of a convertible debt instrument.
The recapitalization will be financed by Germany's Economic Stabilisation Fund, which provides financial support to German companies taking a hit from the coronavirus crisis.
The measure was approved under the State aid Temporary Framework first adopted by the EU on March 19 and later amended twice. According to the commission, the second quarter of 2020 saw member states and other countries rolling out travel restrictions to face the health emergency, causing a heavy decline in travel, with a significant effect on the entire air travel industry.
Lufthansa Group's carriers include Deutsche Lufthansa, Swiss International, Brussels Airlines, Austrian Airlines, Air Dolomiti, Eurowings, Germanwings, Edelweiss Air and SunExpress Deutschland.
"DLH plays a major role in the German economy, notably because it ensures essential connectivity services within Germany through an extensive domestic network," the EU statement said. "It also ensures international connectivity through network airlines based in major hubs such as Munich and Frankfurt airports."
"DLH's airfreight also contributes significantly to foreign trade, contributing to the German export economy and guaranteeing a steady flow of goods for all citizens in these difficult times," the commission added.
The state aid will "not exceed the minimum needed to ensure the viability of DLH and will not go beyond restoring the capital position to before the coronavirus outbreak," the EU said.
Spokespeople for Lufthansa did not immediately respond to a press inquiry Thursday.
--Editing by Breda Lund.
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