Moon of Alabama Brecht quote
June 26, 2020

Deutsche Lufthansa Deal Shows How Bailouts Should Be Done

The corona pandemic has brought many companies to the brink of bankruptcy. Some can and should be saved by the government.

Lufthansa, the 94 years old Germany airline, just made a deal with the German government that shows how this should be done.


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Yesterday the shareholders of Lufthansa voted to accept the government bailout:

Lufthansa (LHAG.DE) shareholders on Thursday backed a 9 billion euro ($10 billion) government bailout, securing the future of Germany’s flagship airline after it was brought to the brink of collapse by the COVID-19 pandemic.

The plan, backed by 98% of the shareholder capital that cast a vote at the online meeting, will see Berlin take a 20% stake in Lufthansa and two board seats.

Shares in the company, which employs around 138,000 people, closed 7.1% higher, having risen strongly earlier after top shareholder Heinz Hermann Thiele dropped objections to the deal.

Also on Thursday, European Union regulators approved Lufthansa’s 6 billion euro recapitalisation, part of the bailout deal, subject to a ban on dividends, share buybacks and some acquisitions until state support is repaid.

The deal structuring is interesting and quite favorable for the government.

The government bought newly issued Lufthansa shares for a total of $300 million which will give it 20% of the ownership of the company. These shares were valued at a quarter of their current value. The government will additionally provide €5.7 billion in 'silent capital'. That is a loan structured as a form of preferred shares that are entitled to a preferred dividend. This will have to be paid back before other shareholders will again get dividends. Lufthansa has a right to pay back the silent capital. But the 20% of the ownership via shares will stay with the government until it decides to sell it.

An additional 3 billion euro credit line is provided by a government owned bank.

This is a much better deal for the taxpayer than in the U.S. where the airlines which were bailed out only had to provide stock warrants which allow the government to buy some shares if it chooses to.

The Lufthansa deal prevents the bankruptcy of the company and a potentially unfriendly foreign takeover. Lufthansa was quite profitable before the onset of the coronavirus crisis. It is a good airline and it is now likely to survive. In a few years it will again make profits.

Seeking Alpha has more technical details of the deal and says that the current Lufthansa share price is too high:

Currently, the share price is about €10.4, which corresponds to a very generous valuation of about 4 times estimated book value. It is also way higher than the €2.56 per share the German government paid. This discount of more than 75% suggests shares of Deutsche Lufthansa are way overvalued.

The share price may currently be overvalued and may well sink. But without the bailout deal the shares would have been worthless.

There is also a deal that will keep most of Lufthansa's employees in their jobs:

[T]ough decisions lie ahead, with Lufthansa working on a restructuring plan in which up to 22,000 jobs could be at risk - although CEO Carsten Spohr told Bild newspaper that hours and wages could be reduced by a fifth instead of axing a fifth of jobs.

This sounds like a company wide introduction of a four day work week though with only 80% of the former full pay.

The cabin crew union has already agreed to such a deal and the pilot and ground worker unions will likely also do so. There currently ain't many airline jobs available elsewhere so for most of the employees this is a better deal than a potential long term unemployment.

I really like how this has turned out. A good company has been saved. The government has set the right conditions and it may even profit from the deal. The shareholders have taken a large haircut but will not lose all of their money. The employees will keep their jobs but with a reduced time and pay.

It would have been better if all this had not been necessary. But in the current situation it is the best that can be done.

All parties have taken a "we are all in the same boat" attitude to make this happen.

This should be an example for those bailout deals that will still have to be made.

Posted by b on June 26, 2020 at 18:13 UTC | Permalink

Comments

Better deal for taxpayers ? What exactly do each and every one of us get for our 6 billion in taxes ?

Posted by: AlainJ | Jun 26 2020 18:21 utc | 1

No comment on the shocking US corporate theft. Actually, here's one: that country is looking worse than the USSR in the late 80's and the Marie Antoinette class will have to offer much more than cake to avoid a revolution...

However, a quick look at Lufthansa's figures for 2019 on Wikipedia reveals:
https://en.wikipedia.org/wiki/Lufthansa

Revenue Increase €36.42 billion (2019
Operating income Decrease €2.0 billion (2019
Net income Decrease €1.21 billion (2019
Total assets Increase €42.66 billion (2019
Total equity Increase €10.15 billion (2019

So the German Gov't paid 10 billion for a 20% stake in a company that yielded only a 3-4 % net profit at 100% of its total equity value. Never mind share valuations... can someone explain how that is actually a good deal for the German Govt please? Perhaps i am just giving the numbers a simplified look. Perhaps, given the immense power of private equity these days, everything has become relative.

Posted by: Et Tu | Jun 26 2020 18:31 utc | 2

Apologies for the misleading "increase" value in the quoted figures, after double checking the original report

https://investor-relations.lufthansagroup.com/fileadmin/downloads/en/financial-reports/annual-reports/LH-AR-2019-e.pdf

to the best of my knowledge the "increase" merely refers to a "UP" symbol to text function from wikipedia in the copy/paste, and not a portion of some figure not mentioned. THE FIGURES ABOVE ARE "TOTAL" NOT "INCREASE" OF SOME OTHER FIGURE

Posted by: Et Tu | Jun 26 2020 18:41 utc | 3

Some can and should be saved by the government

I disagree. Why should the government be allowed to pick winners and losers in the marketplace? Why do some get a bailout and others are allowed to go under?

Why save for a rainy day (which is prudent) if the .gov will just come in and save you from your lack of prudence. Privatized profits, socialized losses..

Taxes are theft by violence - thus immoral. To steal from one group and give to another - this should not be advocated.

Posted by: Deimetri | Jun 26 2020 18:41 utc | 4

Yes, a Galaxy of difference between the cash giveaways called bailouts by the Outlaw US Empire and the partial nationalization of the airline that gains something for the German public in exchange for the infusion of capital. I expect to see more of this sort of activity as the EU begins to overthrow Neoliberalism.

Posted by: karlof1 | Jun 26 2020 18:47 utc | 5

Deimetri @4--

Some economic sectors constitute natural monopolies, and airlines are one of them. The reality is efficiency in such a situation demands one primary operator as with public utilities and railroads. The same is true when it comes to supplying most natural monopolies; however, inefficiencies exist because natural monopolies only operate within the bounds of nation-states thus wasting finite global resources. Unfortunately, humans haven't matured to the point where the nation-state can be abandoned, genuine global-wide efficiencies implemented and a totally collectivized global community realized.

Posted by: karlof1 | Jun 26 2020 19:08 utc | 6

The bailout does not prevent an unfriendly foreign takeover. The "Lufthansa Law" does that! Foreigners can only buy 49% of the shares.
https://investor-relations.lufthansagroup.com/en/share-bonds/basic-data/special-features.html

Posted by: Bjoern | Jun 26 2020 19:09 utc | 7

The deal is certainly better than whatever is happening in the USA, but it still is a procapitalist deal: the workers will have to pay the entire bill. The CEOs and shareholders will not take any real losses.

The values involved demonstrate that: the shareholders could easily absorb the EUR 18 billion loss from their profit rates and keep their workers with full pay. Or they could go to the private sector and loan the amount, easily.

Instead, they chose to receive EUR 9 billion of free money (20% share doesn't give you veto power; it is already a common practice for imperialist countries for their governments to own such share of the strategic companies) and EUR 9 billion more at essentially zero interest for the simple fact they could.

Make no mistakes: this is no social-democrat deal. Europe will not be able to use the "we're the least worst option" mantra for much longer.

Posted by: vk | Jun 26 2020 19:19 utc | 8

Better deal ?

--------------------------------
Lufthansa CEO compensation

"According to our data, Deutsche Lufthansa AG ...
... and paid its CEO total annual compensation worth
€4.4m over the year to December 2018"

--------------------------------

Did our carsten spohr CEO:
take a cut, help the TEAM effort, fall on the sword ?

~4,400,000 EUR = carsten's take

Perhaps carsten provide the example to take a 90% cut of ~3,960,000 EUR, leaving him with a "paltry"
~~~440,000 EUR ( ~10 x average_German_salary )

@~~~44,000 EUR salary, then employee cost = ~80,000 EUR

cost-of-employee-in-germany-calculator

49.5 = ( 3.96 Mega EUR ) / ( 80 k EUR )

therefore carsten alone, by taking a pay cut
can save the jobs of
~49.5 average Germans
and still earn ~10x more than average German employee.

PS: i'll do it for 440 k EUR

( there are studies showing that CEOs have almost no impact )

Posted by: MegaMicro | Jun 26 2020 19:20 utc | 9

Deimetri | Jun 26 2020 18:41 utc | 4

Taxes are theft by violence - thus immoral. To steal from one group and give to another - this should not be advocated.

But this is what taxes are. My taxes go for all sorts of groups and people.
In one respect I agree with you totally - I do not see why my taxes are used for supporting paid killers and other military layabouts. Billions could be saved - or more usefully employed by supporting civilian industries that are useful to the majority.

Posted by: Stonebird | Jun 26 2020 19:30 utc | 10

Granted, the Lufthansa deal is far less toxic than the corporate bailouts we have seen in the United States, which are really just theft, and encouraging financially sloppy behavior and effectively subsidizing stock-buy back programs and other financial engineering rubbish.

But I am still skeptical that it's all THAT good a deal. I mean, don't forget, if a company goes bankrupt its assets don't go up in smoke. It goes into receivership, the stockholders lose money, and the management that steered the company onto the rocks get fired, and replaced with hopefully better managers. The planes are still there, the employees are still working, etc. Granted that a government has a vested interest in not letting it get chopped up and dispersed, there is no need to preserve either stockholders or current management to keep the airline functioning.

The essence of capitalism is that people who make bad investments should lose money.

Posted by: TG | Jun 26 2020 19:39 utc | 11

thanks b... until the shareholders take a strong hit, it doesn't look like the best deal to me... i agree it is better then what is happening in the usa with boeing bail outs and i appreciate @ 5/6 karlof1's comment and in answer to Deimetri, but i also see it much like @8 vk.... not everyone has money in the stock market and benefits from gov't bailouts to corporations, even if they are relatively good ones... why not just nationalize the airlines 100% if they are viewed as a necessity? too bad more countries don't view medical care in a similar way... but i am preaching for a more socialist world and the neo liberal viewpoint still holds sway...

joost wanted more articles on boeing and etc... hopefully joost and norwegian approve of you latest post! wouldn't want to see them bellyaching any!!

Posted by: james | Jun 26 2020 19:46 utc | 12

Here in Australia, QANTAS has announced that 6,000 airline jobs will be cut. That means 6,000 QANTAS employees will soon be joining the already Centrelink dole queues.

And QANTAS airline shares have been subject to share buybacks by the company's most senior executives.

If there were a faster way to Hell, no doubt Australian business and the Scott Morrison govt will be racing each other to find it.

Posted by: Jen | Jun 26 2020 20:25 utc | 13

Perhaps if they capped compensation at say $250k/yr until company pays back all loans.
Surely they are loans.

Posted by: jared | Jun 26 2020 20:26 utc | 14

QANTAS CEO Alan Joyce took home A$23.9m in 2018.
In March 2020 he offered to work for free for the rest of the year ...
the Financial Year ...
which ends June 30, 2020.

Posted by: Hoarsewhisperer | Jun 26 2020 20:35 utc | 15

If somebody still calls this "market economy" the normal way would be: bankruptcy, first are served the employees, second the creditors. Shareholders lose, risk doesn't pay off all the time (except you own the government). The trade mark "Lufthansa" would be part of the insolvency estate, as well as all the planes. Used planes would be very cheap following the market rule of high offer vs. low demand. Personal is available as well. Good conditions for creating a new airline ... What exactly is the reason to throw billions of Euros into this? The gouvernement could for a part of this money create a national state owned carrier out of the insolvency estate.

Posted by: BG13 | Jun 26 2020 20:39 utc | 16

The roadway to hell is paved with the best of intentions.

If a government is going to subsidize the transportation industry in its country to the benefit of the most public, why start with airlines that serve the top few of the public.

Is this deal better than what is happening in the US? It is too soon to tell but I think it is quite possible that the shift to fast train increases and airlines are reduced to more intercontinental.

Without this action being done within a larger context of nationalization (partial or otherwise) of segments of core economic sectors, I question its efficacy. Where is the public discussion about bigger picture futures for countries?....crickets!!!

Posted by: psychohistorian | Jun 26 2020 20:56 utc | 17

A similar deal as Lufthansa was done between the Hong Kong government and its flag carrier Cathay Pacific. Even though Cathay's employees were some of the most vocal and organisers of strikes and various anti-government protests and riots.

talking about biting the hand that feeds it....

Posted by: A.L. | Jun 26 2020 21:08 utc | 18

And, to top it off, this bail out violates one of the most sacred moral principles of capitalism/liberalism: the risk is the onus of the entrepreneur by definition; that's what justifies his absorption of the entire lucre if it pans out.

The worker gave up his freedom of enterprise in exchange for the security and constancy ("fixity") of the wage. Therefore it is his right within the capitalist moral code that he/she be weathered from risk taken by his/her entrepreneur. Those Lufhansa workers should've never have come to the point of taking a 20% cut in their salaries to cover for their bosses' risks. Pandemics are natural disasters, and, for natural disasters, the capitalist system has the insurance industry - which was created exactly for situations like these (as is well historically documented).

Curious fact: in the 2008 meltdown, the USG had to bail out the world's biggest insurance company - AIG - because it flat out went bust (too many of its clients went bankrupt at the same time). Ironies of ironies - or, as I like to say, the farce of the "self-regulating" myth of the "free market".

Posted by: vk | Jun 26 2020 21:14 utc | 19

Yup, all around the world this is where the real fleecing of the poor and middle class will happen. Take ungodly sums of money from the poor and give it to the rich and then the rich can use loop holes not to pay it back. Any poor person not paying their taxes will go to jail. Any CEO who finds a loop hole to not pay back will be obscenely rewarded. Welcome to the real world Neo.

Posted by: BraveNewWorld | Jun 26 2020 21:30 utc | 20

BG13 @16. What exactly is the reason to throw billions of Euros into this?
I really think it is all broken and has become what economist John Williams says:

"The system is bankrupt, and they are just spending the money to prevent an immediate collapse as opposed to having it collapse right now. They have cut reserve rates back to 0%. The bailout of the banking system of the ‘Great Recession’ didn’t work. So, now, they are just printing money and bailing out whatever they have to."

I'm with this guy because the size of these bailouts mean nothing to the governments making them. Come one, come all. When was the last time anyone questioned infinite money supply creation and the deficit spending it created? No one cares a bank can be completely busted and continue to lend in an unlimited way? The balance sheet means nothing so what's a 9 billion euro addition to it. Just keep piling it on. Emergency lending beginning in 2008 and continuing on a larger scale today is all we really have of any economy. So obvious it's done.

Posted by: George | Jun 26 2020 21:39 utc | 21

https://www.ub.edu/web/ub/en/menu_eines/noticies/2020/06/042.html

Huge news.
Researchers found covid in wastewater feces samples from March of LAST YEAR in Barcelona. That is eight to nine months before first known Wuhan case.

The nytimes is already trying to spin this by saying Chinese tourists are responsible for, literally, all the shit in Spain.

Posted by: occupatio | Jun 26 2020 21:47 utc | 22

Effective income tax rate in US = greater than 50%. That is if you don't factor in 'cost of having a damned job', fuel, food, rent/mortgage, insurance, clothing, etc.. (and that's just to get your a$$ back to work on Moday, again, and again, and again, until you drop dead). All of the 'revenue collected' from the dollar earned and the dollar spent ends up right back where it came from, i.e. the corporate spaghetti monster that owns the fed, and the treasury.

Posted by: Joshua | Jun 26 2020 21:48 utc | 23

It is difficult for me to believe that the 'arrangement' is all that different in Deutchland. Just where did the decades of profits magically dissapear to, from which this corporation could easily draw to weather this storm? Did they get teleported to some alternate universe in which their very existance ceased to be? I fucking doubt it...

Posted by: Joshua | Jun 26 2020 21:52 utc | 24

This is a much better deal for the taxpayer than in the U.S. where the airlines which were bailed out only had to provide stock warrants which allow the government to buy some shares if it chooses to.

I don't see this - without knowing the exact terms. Both types of deal allow for the government to take a big chunk of the upside in return for the downside.
Yes the Eur 300m price of the stock implies an immediate EUR 900mn profit for the German government (if we assume the market price means anything when markets are driven by central bank buying), But stock warrants have an implied value too - whether the US government chooses to calculate it or not.
Meanwhile the potential downside for the German government is a massive Eur 8.7bn of the most junior debt - on a breakup everyone else I presume gets paid first.
Book value of Eur 8bn (after the new issue) does not last long when you lose Eur 2bn + a quarter. The government silent capital and bank loans are very very high risk.
There are Eur 20bn of fixed assets in planes and spare parts. How much are they worth if you have to sell them in 2020 or 2021? EUR 12bn? There are some huge write downs going to happen (by banks and analysts even if the rules change to duck them).

This should be an example for those bailout deals that will still have to be made.
or an example of the kind of deal that should not be made

In current markets there is no price discovery to justify a Eur 2.56 or Eur 10 share price. But there is plenty of understanding of what lending Luthansa Eur 9.7bn today means - lunacy.

(And in a market where exit barriers may be high but entry barriers are very very low, so forget about cleaning up in the long term).

Posted by: Michael Droy | Jun 26 2020 22:19 utc | 25

Perhaps the €10 billion bailout was a small percentage of what the German government, i.e. taxpayers, would of had to pay thousands of laid off workers in unemployment benefits if the airline went into bankruptcy. So all things considered maybe it was a good deal for everyone, taxpayers included.

Posted by: krypton | Jun 26 2020 22:21 utc | 26

How much would it have cost the Government in unemployment benefit money if the Airline went belly up?

Posted by: The Old Coot from Au | Jun 26 2020 22:29 utc | 27

@ Posted by: krypton | Jun 26 2020 22:21 utc | 26; @ Posted by: The Old Coot from Au | Jun 26 2020 22:29 utc | 27

So, you two really believe Lufthansa would go bankrupt for EUR 18 billion (EUR 9 billion of which are loans)?

Or, inversely: do you two really believe Lufthansa didn't have the credit rating to go to the financial (free) market and ask for EUR 18 billion under very favorable interest rates?

If German capitalism really had faith Lufthansa could fend off this crisis and profit in the near future, I'm sure there would be a line of private banks waiting to give it the EUR 18 billion loan. Specially since EUR 18 billion, for today's standards, are worth essentially nothing: it is the equivalent of cheap change for the banking sector.

Posted by: vk | Jun 26 2020 22:37 utc | 28

I have to agree with vk and others who see nothing here other than a technocratic state reaching a deal with a capitalist class to preserve a monopoly at workers' expense. I'm quite surprised at b's gushing over this. At least the Americans don't bother dressing up their socialisation of private losses. If at the core of democracy lies a distributive order which requires citizen consent, accountability and transparency in relation to what is held 'in common' (tax revenue, for example) then this is very undemocratic. It's a sweet deal for panicked shareholders who will never have to wear a bad bet.

Posted by: Patroklos | Jun 26 2020 22:52 utc | 29

Besides, the preservation of the jobs (even at 80% wages) are not even contractually guaranteed: the owner of the blog himself admits that when he states "There is also a deal that will keep most of Lufthansa's employees in their jobs".

The CEO of Lufthansa also didn't state he will for sure preserve all the circa 22,000 jobs, as the quote states "[T]ough decisions lie ahead, with Lufthansa working on a restructuring plan in which up to 22,000 jobs could be at risk - although CEO Carsten Spohr told Bild newspaper that hours and wages could be reduced by a fifth instead of axing a fifth of jobs."

As American popular wisdom well states: "coulda shoulda woulda..."

Posted by: vk | Jun 26 2020 23:01 utc | 30

It should be noted that Lufthansa was a state owned enterprise (SOE) until 1994.
So the deal takes LH partially back to where it used to be...

Posted by: c1ue | Jun 26 2020 23:03 utc | 31

Posted by: vk | Jun 26 2020 21:14 utc | 19

Lufhansa workers should've never have come to the point of taking a 20% cut in their salaries to cover for their bosses' risks.

yep, as i calculated before carsten CEO's pay ~14x of average German,
so, because of his misallocation of money, he should subsidize :
at minimum 14 workers 100%
or at least 56 workers 20%

----------------
DE deal:
----------------
"heads, airline wins (big exec pay); tails, serfs lose"

----------------
US deal:
----------------
"heads, serfs lose (HUGE exec pay); tails, serfs lose even more"

----------------


----------------
"the meek shall inherit the earth" = we are still waiting
----------------

Posted by: MegaMicro | Jun 26 2020 23:13 utc | 32

Just for your information, a similar deal has been made in France with Air France...

Except that there is no state ownership, partial or total...
Just somme nice promises that Air France will be a little more CO2 conscious in the future...

So the dumb Frenchmen will continue to subsidize private stockholders for no reason.
Privatizing profits & subsidizing losses, has always been a very French idea :)

Posted by: SysATI | Jun 26 2020 23:25 utc | 33

@4 Dimitri "I disagree. Why should the government be allowed to pick winners and losers in the marketplace? Why do some get a bailout and others are allowed to go under? "

Please. The state maintains a monopoly on violence. That is one of the cornerstones of "being governed".

And since the state maintains a monopoly on violence then it alone picks who wins and who loses amongst those companies that manufacture weapons or who build the infrastructure for waging war abroad or for law enforcement at home.

This has happened since there have been "states", and is regarded as so unremarkable that you don't even think about it.

So, please, get off your high horse.

Posted by: Yeah, Right | Jun 26 2020 23:40 utc | 34

Capitalism with Chinese Characteristics.

Posted by: arby | Jun 26 2020 23:55 utc | 35

Just to remind people about who is getting bailed out: the stockholders, senior management... and the creditors! (i.e., the big banks). When a company knows it's going to get bailed out if the market goes down, it has no incentive to minimize risks and instead management gets rewarded for taking on huge debt loads to buy back stocks and pay high dividends. So in one sense the bailouts are rewarding the looting of a companies assets by the insiders.

But also: there are the creditors who loaned the company all those billions to buy back their stocks and so on and so forth. In a bankruptcy they would lose out. Right now, if a company has already been hollowed out, and the insiders have cashed in their stock before it craters, it's the creditors who would be left taking the hit.

If banks lost money by making massive loans to companies that were artificially inflating their earnings rather than investing in productive enterprises, perhaps they would stop doing that. It's called capitalism. We have capitalism red of tooth and sharp of claw for the lower classes. Perhaps it's time the upper classes had a taste?

Posted by: TG | Jun 26 2020 23:59 utc | 36

occupatio @Jun26 21:47 #22

Your comment is Off-topic.

<> <> <> <> <>

The presence of SARS-COV-2 in Barcelona in March 2019 makes no sense. The disease spreads rapidly and has distinctive features. So any detection much sooner than what we know of is strange and suspect.

AFAIK, the only outbreak that appears to resemble Covid-19 is the 'Vaping illness' in the Spring in USA.

Imagine this scenario: someone with 'vaping illness' flew to Barcelona from USA east coast. They visited tourist sites and restaurants, then flew back. According to what we know of the virus, this person would've infected dozens of people and many of those - even young people - would have fallen ill with the strange ailment in April 2019. And the infected would pass it to hundreds more.

!!

Posted by: Jackrabbit | Jun 27 2020 0:24 utc | 37

Continuing @June27 0:24 #37

A researcher is quoted as saying:

All samples were negatives regarding the SARS-CoV-2 genome presence except for March 12, 2019, in which the levels of SARS-CoV-2 were low but were positive ...

Strange that SARS-COV-2 is found only in that one sample. One would expect that once found, it would continue to be found afterwards.

!!

Posted by: Jackrabbit | Jun 27 2020 0:31 utc | 38

Whatever happened to Austerity?

Posted by: arby | Jun 27 2020 0:43 utc | 39

Similar to the model the Clark government came up with on Air NZ after the idiot private shareholders nearly destroyed the airline in the noughties. Except the government insisted on a complete takeover, then during the Natz term in office the shareholding by government has been reduced to 52%. Everyone else was meant to be kiwi shareholder for such a 'strategic' asset but of course the right left plenty of loopholes and the foreign ownership increased dramatically.
The reason governments even neolib ones move to protect national airlines is simple. They are needed in times of disaster or war to be used for emergency transport but the big one is the way that landing rights were allocated back in the old days still holds largely. Losing an airline to an overseas buyer can mean the destruction of the reciprocal basis upon which international landing rights are allocated, if one allows their national carrier to be bought by an external airline hell can be wrought with tourism.

Lufthansa may have 80 slots a week for landing in NY then departing. Emirates buys into Lufthansa, get controlling stake, then then decides that all the NY slots be routed through Dubai, then Germany loses access for tourists from amerika to Germany. Emirates hooks up the new slots with the China timetable establishing new big route and Lufthansa goes down the gurgler.
This stuff is common because slots at major airports are very hard to come by, no nation state wants to lose them.

Posted by: A User | Jun 27 2020 1:05 utc | 40

I dont wish to go deep in the numbers. But im sure the german government is not as corrupt as usa in bailouts. Thats why its citzens still trust in its governing. Here in good o usa no one trust government or even each other

Posted by: Bob | Jun 27 2020 1:07 utc | 41

So, please, get off your high horse.

Posted by: Yeah, Right | Jun 26 2020 23:40 utc | 34

??

Choosing winners/losers has worked out so well in the case of Amtrak to name one example, pointing this out is riding a high horse?

But as you say, it has always been this way, it will always be this way, so we should just ignore the fraud and incompetence that .gov bailout encourage and be a happy little debt slaves..-got it,good point /sarc

Posted by: Deimetri | Jun 27 2020 1:14 utc | 42

For more see:

https://mises.org/wire/never-ending-story-bailouts-moral-hazard-and-low-economic-growth

Posted by: Deimetri | Jun 27 2020 1:34 utc | 43

The so called market purists who believe that capitalism is some thing sacred which must be left free of interference from the people who use it pay for it and depend upon it always miss the basic point especially if they are amerikan where high levels of selfish corruption have endured for centuries. Not all administrations are that dissolute, the trick of separating citizens from their government is advanced in amerika so far that most see government as separate entity from citizens, whereas in Germany where standards are decaying they have not decayed to the point that no one trusts all politicians all the time.

Therefore government ownership can be seen as citizen participation which is vital at a time like this because the effects of a national airline failing extend well beyond a few wealthy shareholders losing some wealth.
In the case of Air NZ the board was sacked, most senior execs were shown the door without abnormal compensation & the shareholders were bought out at close to current market valuation, they got pennies for their greedy investment.
I do not know the structure of the Lufthansa buyin but the fact that shareholders resisted indicates that they don't feel as though they are going to do well from the deal.Perhaps they had buyers for Lufthansa's international landing slots already lined up on the side and hoped to make big bucks on that - screw German workers, small businesses dependent on tourism or the public faced with uncertain travel routes.

Posted by: A User | Jun 27 2020 1:36 utc | 44

Lufthansa might have been viable before Covid19 but their stock was and is over valued. US companies like Boeing and banks were zombies in August 2019 and got their first financial IVs already then: Evidence Suggests U.S. Financial Crisis Started on August 14, 2019

One difference is the brand of the fiat notes (money): while Germany has the Euro - fairly ok -, the US has the magic dollar, the world's trade and finance medium, so they can print them almost scot-free.

The German central government deal with Lufthansa is indeed better than the self payment of the privatized FED to its owner banks and friends for all Germans. Democratic governments are openly elected every 4-5 years by the public; not so the FED directors.

Posted by: Antonym | Jun 27 2020 2:00 utc | 45

What is needed is another Sir Alfred Watson, actuary extraordinaire, "the person who did the most to shape the welfare state in modern Britain" according to Susan Pedersen. LRB 8 February 2018. She reviews a book: Bread for all: The origins of the welfare state by Chris Renwick.

Alfred Watson is ignore in this text in favour of Sir William Beveridge. John Maynard Keynes and Beveridge campaigned vigorously for the British Liberal Party in 1945 probably in terror that Churchill was about to lose to the socialist Labour Party.

Pedersen notes that "the harder they campaigned, the more Labour votes they minted". A nice phrase indeed. Note that USA - that is how a ballot box revolution is won.

This describes the progressive acquisition of health insurance companies and all manner of private companies that became under, the post war Labour Government, the National Health Service.

History will repeat itself as the grand experiment of bloated private finance capitalist theft unravels and so it is worth reviewing how this transformation was achieved and to avoid old errors and uninformed blunders.

Apologies for not supplying a link, I just rediscovered the piece as I was about to light my solstice fire pit. What a timely rediscovery. Both this review and the book are worth the read for those that would remake our future.

Posted by: uncle tungsten | Jun 27 2020 2:03 utc | 46

@ Posted by: A User | Jun 27 2020 1:36 utc | 44

The problem is that Germany is a capitalist State. That's not how a capitalist State should work. This is a sign worse things are yet to come (decline). Take for example the human body: you can feel the signs of old age, and you know they mean permanent decline, not the beginning of something new. There is no alchemy in the real world.

I didn't propose Lufthansa to go down: I proposed for Lufthansa management to go down. Chop some upper-management heads off and you get your solvency back. EUR 18 billion is nothing for a company of that size: I'm sure if they gave up one year of their profits would already be more than enough to cover for the hole.

Unless, of course, the hole is bigger than the officially declared.

The management of a company is not the company: the soul of a company is its infrastructure, its organization and its workers - specially its highly specialized workers (the ones with the "know-how"). The first hydroelectric dam of the USSR was built with American engineers - not American management or American money. You don't have to have a bunch of executives to build civilization and wealth; it is the worker who is the soul of civilization and progress.

As I said: if Lufthansa was in such a good shape and only needed mere EUR 18 billion, there would be a line of private banks offering the loan with generously low interest (as it would be an automatic win for the bank, no matter how low the "return on capital"; and wins are rare in today's world, so you can't be too picky). Either it did resort to the government because it could (a show of strength to the German people) or its finances are not so great as the owner of this blog state they are. I hope, for the general welfare of the German people, that it was just a show of strength, because if it is dire finances, then those EUR 18 billion are just the amuse-buche.

P.S.: Governments owning some share of the key national companies is common practice in the First World nations. In France, if I'm not mistaken, there's a Law where the government must be the owner of at least 16% of the shares of every "strategic" companies. The UK frequently nationalizes bankrupt companies it deems strategic - only to re-privatize them later, when they are profitable again (the Thatcher method). If State ownership of shares was equal to socialism, we would've been living in a socialist world many decades ago.

Posted by: vk | Jun 27 2020 2:41 utc | 47

vk #47

I see your point and it makes a lot of sense. You may be familiar with the rise and fall of the Canadian company Bombardier, once the high flying darling of the Quebec government. Billions of taxpayer dollars were injected into the company to keep it afloat — all for nothing and it’s now a skeleton of its former self.

Posted by: krypton | Jun 27 2020 3:40 utc | 48

No one denies Germany is a capitalist state, nor does anyone assert such a limited state shareholding is a type of socialism. The notion of state ownership of any large centralised entity being socialist is frankly laughable, but 20% is nothing more nor less than a capitalist state ensuring an important asset isn't strip-mined by greedy shareholders.
AFAIC the state chucking in 20 billion or so for a 20% stake is still infinitely preferable to 'normal' capitalism which would be to assert that the 100% shareholding by elites and their insurance/banking/investment puppets allows those shareholders 100% ownership of all Lufthansa assets especially the less concrete ones such as reputation, goodwill & history, those assets that have been created by workers & citizens.
Buyins such as this don't make things better, but they do help prevent a bad situation from becoming worse.
As far as the money the state is injecting, that is a big yawn as the 'finance wizards' who have been fucking humans over since the 80's have ended up being hoist on their own petard, money is now nothing - worthless especially for a state such as Germany which has a very low debt load. That sum whatever it finally turns out to be means nothing apart from those shareholders who foolishly imagine that the dilution of their shareholding in return for some imaginary numbers is a 'win' and old conservatives who have clung on to the ludicrous belief that 'the books must be balanced'.

Until currencies return to some form of reality by which each unit of currency is a portion of a reserve of some real world object, not necessarily gold but it should be something whose use in the real world has a defined cost, so the value is real & not the product of manipulation, currencies will continue to be a device which is being increasingly drained of meaning or use.

Posted by: A User | Jun 27 2020 4:45 utc | 49

The German governments response to the Corona-induced economic crisis is remarkably "social". I would even say suspiciously social. I got this impression the first time when I heard about the plans to temporary lower the VAT as an economic stimulus.

Are this indications for a paradigm shift away from neoliberalism back to social market economy?

Posted by: m | Jun 27 2020 6:03 utc | 50

vk #47

Unless, of course, the hole is bigger than the officially declared.

Well the IMF is staring into a deep hole: Thankfully the World Socialist Website is running the story.

The IMF said the “disconnect” between the rebound in financial markets and the underlying economic prospects raised “the possibility that financial conditions may tighten more than assumed.”

Posted by: uncle tungsten | Jun 27 2020 7:07 utc | 52

All the stakeholders who had to approve the bailout have done so. The only people with an interest in bitching about it would be members of the International Billionaires Club who were hoping to snap it up for a bargain-basement price. And then either break it up and sell off the bits, or 'manage' it Boeing-style.

Posted by: Hoarsewhisperer | Jun 27 2020 7:44 utc | 53

@42 Deimitri "Choosing winners/losers has worked out so well in the case of Amtrak to name one example, pointing this out is riding a high horse?"

I'm pointing out that you claimed ideological position does not correspond to your argued examples and, therefore, you reveal how half-baked and ill-thought-out your ideology is.

I mean, honestly, your original argument is laughable, because every time a government puts out an open tender for some public works it is, by definition, choosing a single winner from amongst a field of losers every single time it offers a contract to *that* tender over all the competing tenders.

By. Definition.

So your original argument (just to remind everyone: "Why should the government be allowed to pick winners and losers in the marketplace?") is preposterous, manifestly absurd.

And whenever you do post an example it becomes obvious that this isn't *actually* what you are arguing, because in those examples you are arguing that the government should not intervene to prevent a company or an entire industry from going bust.

That is a completely different argument from "Why should the government be allowed to pick winners and losers in the marketplace?"

So, please, what is your beef, exactly?

Are you still going to insist that you are arguing that governments should not be allowed to "pick winners and losers in the marketplace".

Or are you going to accept that what you are really arguing is that governments should not step in to prevent a sector of the economy from collapsing?

Which one, dude, because those are two very different arguments.

Posted by: Yeah, Right | Jun 27 2020 8:28 utc | 54

@53 Horsewhisperer E.x.a.c.t.l.y.

The German government has clearly decided that it is unacceptable that its national carrier go under. I can't think of any other country that would find that an acceptable option, but maybe that's just me.

But here's the thing: rather than simply throwing money at it (the American solution) or arranging for a foreign takeover (the American solution for those countries that aren't the USA) the German government has decided to take an equity position in the company in exchange for an injection of capital.

Queue the outrage from the usual suspects, though that seems an eminently sensible policy to me. And doubly-so when it has been the German government's own policy of lockdown that has contributed to bringing Lufthansa to its knees.

No need to feed the vultures, not when you in no small measure reduced that cash cow to a shriveled carcass.

Posted by: Yeah, Right | Jun 27 2020 8:39 utc | 55

I'm also happy with this deal. I love Lufthansa and I'm glad that it's been saved. I think when the rulers are honest and are not hampered by greed, it's easy to do the right thing. The problem with the USA is that its functionaries are hypocritical and its citizens are largely ignorant. The state of Israel derives more benefits from the USA than does the US itself.

Posted by: Steve | Jun 27 2020 9:45 utc | 56

Cool pic. I love classic anything, including planes. That being said, air travel is a luxury of the past. In the coming global economic contraction, be it voluntary or involuntary and more than likely it will be the latter, air travel will diminish to a paltry percentage of what it once was at its peak. This deal is just a financial magic act deferring the inevitable just as Obamacare is financial magic act to pump life support into already failed insurance companies. I agree with the others who assert the shareholders should not be bailed out, for all the obvious reasons.

Posted by: 450.org | Jun 27 2020 13:02 utc | 57

occupatio@22
Though not strictly germane to this thread your's is an interesting point.
This is from The Skwawkbox a left wing Labour website in the UK:

"...The finding was in a single sample and the SSPH (Spanish Society for Public Health and Sanitary Administration) is hoping to find other samples to confirm it, but the news turns on its head the original narrative of the virus emerging in China last autumn and spreading to Europe - adding to the doubts raised by the definitely-confirmed presence of COVID-19 in France very soon afterward....

...In December last year, newspapers reported on a raised winter-season mortality rate in the UK of around 800 additional deaths a week compared to the 5-year average, as a chart published by the Daily Mail showed.

...
"While the rate seems to have settled at the end of the year - as the real first peak of infection burned out? - the Mail also reported at the same time that intensive care admissions for pneumonia were three times higher than normal.

"Medics in Italy also reported high death rates caused by 'atypical pneumonia' last autumn, with many Italians believing it arrived in their country from the Netherlands.

"If the virus was present in Spain in March last year or earlier, then with the high levels of travel between Spain and the UK it's extremely improbable that it would not have rapidly arrived in the UK, even assuming it was not already here...."

The key fact seems to be that the 'baseline' mortality figures from last year seem to be considerably higher (800 deaths per week) than the average over the five previous years. This suggests two things:
1/ The mortality from this virus is higher than previously thought.
2/ That the 'herd immunity' strategy was initially favoured by the right wing because it had already been implemented. In fact 'herd immunity' is the alternative to public health, leaving treatment of the virus to the marketplace in which those who can afford private nursing and, if necessary, private clinics survive while the masses take their chances in badly run, run down hospitals, with overworked staff, underequipped with PEP and inclined to experiment with, for example quinine substitutes.

It is not surprising that partisans of capitalism, including those who mistake selfishness for libertarianism, are so quick to deny that there is a pandemic- their philosophy demands that, where there are pandemics, particularly in countries such as India, millions be left to their fate, to die untreated because the alternative would be to tax the rich.
Capitalist society is a caste system, too, in which the poor are held to be inferior, a burden on society and no loss when they die in agony from diseases from which the wealthy are generally protected.

Posted by: bevin | Jun 27 2020 13:18 utc | 58

Regarding Lufthansa- the deal though much better than anything attempted in the USA-is nevertheless a bad one.

As has been pointed out Lufthansa was established and financed by the public. It was privatised as part of the neo-liberal wave whereby public property (The Commons) everywhere was virtually given away to capitalists-many of them clients of the lawmakers. Now it is being established that while capital is enormously rewarded for the risks it takes in the marketplace, in reality there are no risks- politicians will direct public money from other social purposes to recapitalise firms like Lufthansa and ensure that their managers are kept in the style to which they have become accustomed.

b is right to argue that the state should insist on an ownership stake. In fact the state should insist on full control. The workers at Lufthansa could run the enterprise with much less bother, much more economically and efficiently-and would be doing so were the hierarchies not so terrified by the principle of workers control, which spells finis to the vast layers of clowns, thieves and consultants who live off the lifeblood of those who fly and maintain the planes and buy the tickets.

Posted by: bevin | Jun 27 2020 13:29 utc | 59

Which one, dude, because those are two very different arguments.

Posted by: Yeah, Right | Jun 27 2020 8:28 utc | 54

'Sigh' ...if only insults were arguments...

So in your example a government offers a public tender, the company that wins the tender is rewarded for it's capitalistic efficiency (by having the lowest bid) by getting the job.

...but all other companies that didn't win the .gov bid are free to go win somewhere else and further all companies that didn't win the bid are not forced into bankruptcy or out of business are they? They can go ply their wares/services elsewhere.

So this is not the .gov per se picking winners and losers is it?

On the other hand, by .gov choosing who gets stolen taxpayer money (bailouts) it is choosing which company gets to stay in business and who goes out of business...really choosing winners and losers..

But according to your insults it is my argument that is 'half-baked and ill-thought-out, laughable, preposterous, and manifestly absurd'. -okay brah, whatever you say..lol

Posted by: Deimetri | Jun 27 2020 13:34 utc | 60

@ Posted by: Hoarsewhisperer | Jun 27 2020 7:44 utc | 53

If the German government really was worried about Lufthansa not getting in foreign hands and deem it too important, then it should wait for Lufthansa to go bankrupt and buy it whole for a much lower price.

Or, it could simply put EUR 18 billion more and get a majority stake at the company. Why stop at 20%? What's the science behind that?

Either you're in favor of nationalization or you're not. This 20% solution looks like some half-baked center-left solution, that will solve neither problem in the lomg run.

If Lufthansa goes bankrupt, the German State can use its imperium to buy it out preferentially - as is common practice in the First World countries already. There never was any risk Lufthansa could fall into foreign ownership, this is pure fearmongering.

And a EUR 18 billion bailout? That's a too small bailout for a company the size of Lufthansa. The numbers simply don't fit the official narrative. My guess is this was a "preventive bailout", i.e. the German State doesn't want to nationalize Lufthansa and already is negotiating a "neoliberal nationalization"/structuralization so as to protect it juridically if a more left leaning government succeeds Merkel.

Posted by: vk | Jun 27 2020 14:14 utc | 61

The entire airline business has changed for good, or at least for quite a bit of time. People will travel much less for the foreseeable future, and especially for the next couple of years. This has two implications that cannot be avoided for the majority of the world's airlines: (1) airlines will have to cut down flights, cut down staff, and cut down planes; (2) as long as the airline delays huge cutbacks, that 18 billion input is going to get whittled away really quickly.

What this suggests to me is the possibility that maybe the German government is mearly changing the structures now in preparation for the next bailout round, which will have to be much bigger; while at the same time leaving the existing shareholders in place to take the much larger losses and cutbacks that are probably going to be required. If the government took over complete ownership now, they will then have 100% liability for the next bailout when it becomes necessary, plus full accountability to the electorate when they have to fire a large slice of the workers. Airlines don't become profitable when nobody travels - instead they are massive sinks for money.

Maybe the plan is to get two seats on the board, get 20% voting rights (though 20% is not much weight to pull, this is the weakness of the argument) and use that when the time comes for the really big bailout to get more leverage over recalcitrant shareholders.

It is just a thought, but not being an economist I don't really understand how these bailouts would work in practice anyway.

Posted by: BM | Jun 27 2020 16:41 utc | 62

...
This 20% solution looks like some half-baked center-left solution, that will solve neither problem in the lomg run.
...
Posted by: vk | Jun 27 2020 14:14 utc | 61

I'm inclined to half-agree with you.
Listening to the pundits in Oz & elsewhere holding forth on how a Global Recovery will look, there are as many opinions as there are pundits. One would have read the documents that were signed especially the Terms, Conditions and anticipated timelines as well as counting the If > Thens therein to properly assess it.

The bailout scheme had to pass the sniff-test of an extremely diverse group of stakeholders so, imo, it is probably detailed and persuasive.

Posted by: Hoarsewhisperer | Jun 27 2020 17:03 utc | 63

An you write an article about why all this is not possible in US of A?

Posted by: Amir | Jun 27 2020 17:06 utc | 64

vk | 61

"There never was any risk Lufthansa could fall into foreign ownership"

Exactly. In recent months, foreign holders have sold off Lufthansa shares up to the point where foreign ownership really has fallen to record lows. Compare Shareholders' structure as of 03 June 2020 to Shareholders' structure as of 31 December 2019. The US' BlackRock, Bank of America, Morgan Stanley and Goldman Sachs Group as well as France's Société Générale and the Cayman's Lansdowne Partners International have all rather been disinvesting. But, BUT, that said, these entities (investment banks and hedge funds) have recently been toying around a lot with Lufthansa shares, through options and a lot of other stuff I don’t understand. Betting – against Lufthansa. So my guess is this latest move by my government is all about keeping the company stable with regard to its value at the stock exchange, and thereby keeping German stock markets stable and existing fortunes intact. It’s all about the trading end of the company, and not necessarily the productive side. What’s more, Merkel doesn’t give a rat’s *ss about the 140,000 employees of Lufthansa. She couldn’t care even if she tried very, very hard. It’s just not in her nature.

From what I read in investor relations filings, Lufthansa didn’t do too well in 2019. Hardly surprising, isn’t it? They couldn’t afford a dividend. They added another 100+ aircraft to their fleet and yet were not able to generate any more turnover than before, let alone profit.

Posted by: Scotch Bingeington | Jun 27 2020 17:22 utc | 65

@ Posted by: Yeah, Right | Jun 27 2020 8:39 utc | 55

Your argument is absurd because the German government didn't enforce the lockdown because it wanted to, but because it was needed to save German lives.

By stating the German government (therefore, the German people) owes Lufthansa an indemnity for the lockdown is the same as stating private companies are above humanity itself.

Posted by: vk | Jun 27 2020 17:23 utc | 66

I'd agree except that the passenger airline industry has to go away if we're to have any chance of avoiding the worst of climate change.

Posted by: Guest | Jun 27 2020 17:30 utc | 67

@60 "So in your example a government offers a public tender, the company that wins the tender is rewarded for it's capitalistic efficiency (by having the lowest bid) by getting the job."

Nobody is ever obliged to take the lowest bid when a job goes out to tender.

"...but all other companies that didn't win the .gov bid are free to go win somewhere else and further all companies that didn't win the bid are not forced into bankruptcy or out of business are they? They can go ply their wares/services elsewhere.
So this is not the .gov per se picking winners and losers is it?"

So, again, your complaint is not about governments picking "winners and losers" but about governments intervening to prevent companies from going bankrupt.

Thanks, glad we finally settled that one.

Posted by: Yeah, Right | Jun 28 2020 0:27 utc | 68

Amir #64

CAn you write an article about why all this is not possible in US of A?

Thanks Amir, it is perfectly possible in the USA. Government introduces legislation establishing a national superannuation or pension scheme. Workers contributions are mandatory as are shareholders. Workers pay cash before tax, shareholders pay shares. You levy a tax on shareholders to surrender shares based on each weeks production. The Government contributes a percentage based on and actuarial formula that factors industry proportion of GDP and concepts of industrial or commercial strategic necessity.

One critical factor is establishing ballot fairness in both industries and unions by giving workers and shareholders absolute election integrity. An alien concept in the USA, yes, but easily achievable.

Ultimately Unions need to establish representation on company boards and there are many ways of setting that up. Vital to this success it needs to be a transitional process over say five years.

Unions are a key factor here as they can represent broad interests of workers. See https://www.wsws.org/ for a trove of stories on workers organising.

Posted by: uncle tungsten | Jun 28 2020 0:54 utc | 69

Guest #67

I'd agree except that the passenger airline industry has to go away if we're to have any chance of avoiding the worst of climate change.

I figure that the airline industry has gone away to a large degree. It wont be returning soon and certainly between those countries with high and lingering covid19 cases.

Currently air travel is severely curtailed. Next step there might be some lifting of restrictions but low covid19 source country arrivals will be faced with mandatory quarantine for 14+ days in cheap hotels. High covid19 source countries will be three months away if ever.

Who wants to fly in a sealed cylinder knowing absolutely that quarantine and screening is just another commodity that the wealthy can buy their way around? So the number of travelers will not recover. The regulators are known to be totally untrustworthy.

Posted by: uncle tungsten | Jun 28 2020 1:06 utc | 70

...
"Nobody is ever obliged to take the lowest bid when a job goes out to tender."
...
Posted by: Yeah, Right | Jun 28 2020 0:27 utc | 68

100% correct.

In fact anyone who asserts otherwise has never bothered to read an Invitation To Tender document which always concludes with a warning that the lowest or any other bid will not necessarily be accepted.

Posted by: Hoarsewhisperer | Jun 28 2020 4:21 utc | 71

Too much easy B..For the fat Angela is too much easy act like this..After 20 years of monetary rule in Europe with the almost total monopoly of exports due to fucking german-centric Euro currency..No it's not a a model only the the reward of globalist politics...by the way bring out the Venezuelan gold, lousy thieves!

Posted by: LuBa | Jun 28 2020 8:26 utc | 72

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