LTU Confident of EU Approval for State Guarantees

Troubled package tour airline LTU on Monday said it's confident that the European Commission will approve the North Rhine-Westphalian state government's plans to issue guarantees for a credit to save it from insolvency.

Deutsche Lufthansa AG, Germany's national airline, on Monday announced that it will be lodging a complaint against the plans with Transport Commissioner Loyola de Palacio.

An LTU spokesman said his company would be taking this information on board. Spokespeople for three LTU competitors told Handelsblatt that they too harbor reservations about the planned state guarantees for the Düsseldorf-based charter airline.

The three airlines – Condor (part of the Thomas Cook AG travel group, which Lufthansa jointly owns with Karstadt Quelle), Air Berlin and Germania – said they would be carrying out further investigations into the plans.

A preliminary rescue package for LTU – which found itself in difficulties following the collapse of its major shareholder, Swissair – was agreed at a meeting led by North Rhine-Westphalia's state premier, Wolfgang Clement, on Saturday.

As an interim solution, the LTU spokesman said that savings bank Düsseldorf Stadt-Sparkasse will take over Swissair's 49.9% stake in LTU from Swissair's receiver. A Düsseldorf Stadt-Sparkasse said the payment for the stake would be passed to Swissair once a new investor is found.

He added that the Sparkasse itself was considering taking over a small part of the Swissair stake, since LTU's outlook was far from hopeless and it had good prospects for a successful restructuring.

Retail group Rewe, which holds a 40% stake in the LTU charter airline and last year acquired all of LTU's tour operators, will provide fresh capital of DM80–100 million. A loan of DM240 million, which is to be secured by the state guarantee from North Rhine-Westphalia, is to be provided by a third party.

Industry observers believe that the investor is the state's central savings bank, Westdeutsche Landesbank (WestLB), whose chief executive Jürgen Sengera and board member Hans Henning attended Saturday's meeting.

A spokesman for de Palacio on Monday said no application had yet been received for approval of a state subsidy for LTU. He said once the application was received, the Commission would examine the application to see whether it met with EU regulations and would then make a prompt decision.

But people close to de Palacio said the prospects for approval looked good. LTU had never before received any state subsidies, and the Commission tended to accept aid packages for airlines on the basis of "once only, and never again". But these people said that the airline would need to show evidence of a viable restructuring plan that would secure the airline's long-term existence.

An LTU spokesman had said that the restructuring package agreed over the weekend was aimed at creating the conditions for a return to profit by 2004 for the airline, which has been in financial difficulties for some years.