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. Last Updated: 07/27/2016

Pension Deal Clears Way for Lufthansa Privatization

BONN -- The German government cleared the way for the full privatization of Deutsche Lufthansa AG on Wednesday after agreeing on a deal with the loss-making national airline on meeting its pension liabilities. The problem of how pensions will be paid when Lufthansa is no longer part of the public sector had been the main obstacle to the government's plan to sell its 51.42 percent stake. Lufthansa, which has been losing money for the past three years, said privatization would enable it to return to profit and help it in the cut-throat struggle against rival airlines. "Only a strong Lufthansa can survive in the face of this murderous competition," the airline's chairman J--rgen Weber told a news conference. The government will let its stake fall below 50 percent by not subscribing to a planned capital increase which Lufthansa hopes will raise more than 1 billion Deutsche marks ($604.5 million) later this year. It then plans to sell off its shareholding in stages. Under the complicated pensions deal, the government will pay a total of 1.6 billion marks to cover the pensions of existing Lufthansa staff and pensioners. It will also guarantee pensions up to 1.1 billion marks in the event of Lufthansa becoming insolvent. The airline will build up its own pension reserves, starting by laying aside 264 million mark in 1995, and will be liable for the pensions of staff who join after 1995. Share analysts welcomed the news but said investors would want more information about the government's plans to sell its shares before subscribing to the capital increase. Michael Geiger, analyst at Natwest Securities in London, said the pensions compromise was a good one. "The best deal in the circumstances. It can be judged neutrally and should have no effect on Lufthansa earnings," he said. Finance Minister Theo Waigel said the privatization would help reduce soaring government debt, with receipts from the sell-off and lower interest payments more than offsetting the cost of the pension guarantees. At their current market price of around 200 marks, the government's shares in the airline were worth around 3.1 billion marks. "As a result of this, net borrowing could be reduced correspondingly and the government would save around 200 million marks in interest payments per year," Waigel added. He gave no indication of the likely timing of the sell-off but said it would probably happen in several stages.