German airline Lufthansa has announced that it will be cutting 22,000 jobs as it struggles to address the impact of the coronavirus pandemic on air travel.
Lufthansa will reduce its global workforce by 22,000 jobs as it predicted a slow recovery in demand and is also expecting to reduce its fleet by 100 aircraft after the crisis. According to the German carrier, half the job cuts would be in Germany.
The company hopes to come up with an agreement on the measures with unions by June 22. Lufthansa also hoped to minimize redundancies via short-time working arrangements and crisis agreements.
The airline said: "The aim is to pave the way for the preservation of as many jobs as possible in the Lufthansa Group."
Currently, the company has over 135,000 people globally with around half of them located in Germany.
Lufthansa labor director Michael Niggemann explained: "Without a significant reduction in personnel costs during the crisis, we will miss the opportunity of a better restart from the crisis and risk that the Lufthansa Group will emerge from the crisis significantly weakened."
$9.8 billion bailout agreement
At the end of May, Lufthansa finalized a bailout package worth $9.8 billion with the German government after several weeks of negotiations.
Under the agreement, the German government will receive a 20% stake in Lufthansa in exchange of bailing out the airline for $9.8 billion. The deal will also grant the government two seats on the company’s supervisory board.
The airline said that the company’s executive board supports the "stabilization package" approved by Germany’s Federal Economic Stabilization Fund. The fund is being used by the government to help companies affected by the coronavirus pandemic.
The rescue deal involves the government injecting up to $6.2 billion into the airline, earning a return that begins at 4% this year and in 2021 before increasing the year after.
The bailout also includes a three-year credit facility of up to $3.3 billion, most of which will come from KfW, the state-owned development bank.
In return, the German government will receive a 20% stake in Lufthansa for $2.79 per share or approximately $327 million. There is also an option for the government to increase its stake to 25% plus one share, giving it the ability to hamper any potential takeover.
Lufthansa may be able to repurchase its shares in full by the end of 2023, provided that it has made a full repayment of the government’s $6.2 billion investment and the share price is above the purchase price.
This year, the stock of the company has almost fallen by 50%, closing at $9.41 in Frankfurt on Monday.
The government released a statement saying: “Before the pandemic, the company was healthy and profitable and had good prospects for the future, but it faces an existential emergency because of the current corona crisis.”
“The federal government’s stabilization package takes into account the needs of the company as well as the needs of taxpayers and employees of the Lufthansa Group,” the government added.
Other airlines cutting jobs
The expected slow demand recovery in air travel has also prompted other airlines to undertake similar measures.
British Airways proposed to make 12,000 of its 45,000 staff redundant, including over 1,000 pilot roles.
Meanwhile, Ryanair announced that it will cut 15% of its workforce or 3,000 jobs. Ryanair CEO Michael O'Leary said this was just "the minimum that we need just to survive the next 12 months"
EasyJet plans to cut up to 30% of its workforce or around 4,500 jobs while Virgin Atlantic will cut 3,000 jobs from its 10,000-strong workforce.
