Lufthansa hits at LTU rescue plan
A government-orchestrated bail-out for LTU, the German charter airline, was facing criticism on Monday as Lufthansa, the German national airline, turned to the European Commission to stop what it described as “state subsidies”.
Lufthansa competes with LTU through Condor, the charter airline of Thomas Cook, the second-largest travel group in Europe. Thomas Cook is a joint venture between Lufthansa and retailer Karstadt Quelle.
Lufthansa said it had lodged a complaint with Loyola de Palacio, EU Commissioner for transport, whose responsibility includes state aid to the transport industry.
Lufthansa’s objection followed the announcement on Saturday that the government of the state of North-Rhine Westphalia had agreed a credit guarantee for LTU in a last-minute move to avert the airline’s bankruptcy. Under the plan, the state savings bank of Düsseldorf would also take over the 49.9 per cent stake in LTU owned by Swissair.
In return, Rewe, the retail group and LTU’s second-largest shareholder, would provide LTU with about DM100m ($45.5m) in fresh capital while an undisclosed party, believed to be WestLB, the public sector bank, would extend a DM240m loan.
The plan, ostensibly presented as a temporary solution to help LTU find a long-term investor, was denounced by Lufthansa as harmful political interference in the market.
“The measures proposed by the regional government in North-Rhine will further increase pressure on jobs at Lufthansa,” the airline said. It added that it would utilise all the means at its disposal “to ensure that the regional government does not intervene in the market and unilaterally distort competition”.
A spokesman for the European Commission said the EU executive had not received notification of the LTU package, but would have to give its approval before the credit guarantee could be implemented.
Lufthansa said it thought a “practicable restructuring concept” should be defined for LTU before such approval could be given. The rescue was decided after a PwC report of October 29 showed a long-term restructuring of LTU was possible.
Bankers for the charter airline also expressed confidence in its viability, saying it had agreed a package of measures to reduce its funding costs.
They said the carrier was up to date with current financial commitments, but had been granted some short-term relief from loan and rental payments.
It had also completed its conversion to an all-Airbus fleet and secured the deferral of options on further Airbus deliveries.
The future of LTU, long plagued by chronically high costs, was thrown into doubt last month by the collapse of Swissair.
The Swiss airline was not only LTU’s largest shareholder but had also agreed to fund its expensive restructuring up to 2005. Additional reporting by Michael Mann in Brussels, Bettina Wassener in Frankfurt, and Doug Cameron in London
Financial Times
