Lufthansa’s current top shareholder, German billionaire Heinz Hermann Thiele, could be playing a “chicken game.”
Photo: Alex Kraus/Bloomberg NewsThe battle for control at Europe’s biggest legacy airline gives investors a fascinating peek into Germany’s rival industrial interests—but is unlikely to reap them gains.
On Thursday, the shareholders of Cologne-headquartered giant Lufthansa will decide whether to green-light a €9 billion ($9.81 billion) state bailout, which would leave the German government holding a 20% stake. There wouldn’t appear to be much choice: The airline needs the cash to survive the Covid-19 crisis.
Still, the deal could come crashing down. Lufthansa’s current top shareholder, German billionaire Heinz Hermann Thiele, has suggested that he may reject it. He has enough voting power.
The government has a lot riding on this. Beyond safeguarding the company’s 138,000 jobs—more than half of them in Germany—the bailout is part of its economic strategy of preserving and promoting corporate champions. Berlin wants to ensure that Lufthansa keeps providing connectivity to the country’s dispersed network of exporters.
Mr. Thiele could be playing a “chicken game,” threatening to push the airline toward bankruptcy to wrest a better deal from the government. He hasn’t explicitly said that he will vote against the deal, suggesting there is room for further negotiation. Ideally, he would want to scrap the equity part of the package—thus avoiding the dilution of his stake—in exchange for an all-debt bailout.
Such a big course correction may be politically unpalatable. “It is unlikely that the government will budge. Lufthansa was supposed to be the blueprint for all future bailouts,” said Mark Manduca, Citi’s European airline analyst.
There is a chance, however, that the bailout spat masks a deeper strategic battle.
Even without a government stake, Lufthansa’s management hasn’t traditionally deviated far from the interests of Berlin, aggressively protecting domestic networks, often at the expense of profitability. Even before this year’s crisis, the company’s stock had only returned a paltry 20% to investors over 20 years.
Changing the status quo would be a daunting task. The likely need for a large reduction in routes, head count and salaries would encounter massive resistance from unions and officials. Germany’s geography, made up of many medium-size cities, works against the hub-and-spoke approach typical of legacy airlines.
But the 79-year-old Mr. Thiele’s career may give him the necessary confidence. Once a humble patent lawyer at Knorr-Bremse —a manufacturer of brakes for trucks and trains—he eventually bought control of the company from its founder and implemented sweeping changes, cutting costs and refocusing production on core activities. Among German industrial heavyweights, Knorr-Bremse is known for its long working hours, as well as the hands-on management style of Mr. Thiele, who is now “honorary chairman.”
The mogul has already sold part of his majority Knorr-Bremse stake to raise money for “other private investments,” and this month increased his ownership of Lufthansa to 16%. He would have the money to save the company himself.
This suggests he isn’t bluffing, and may want to prove that this iconic airline can also deliver value to shareholders. Mr. Thiele could even have some political scores to settle. He has publicly criticized the German government’s strategy of investing in companies, and in the past called Chancellor Angela Merkel an “autocrat.”
A third possibility, given how secretive the German billionaire has been about his intentions, is that he remains undecided about which of the two paths to take. He had little to lose from making a credible stand.
Either way, investors should probably keep the brakes on. It takes more than a German industrialist, however successful, to turn a European full-service airline into a cash cow.
Write to Jon Sindreu at jon.sindreu@wsj.com
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