FRANKFURT—Lufthansa’s board of directors has approved a compromise reached by the European Commission and the German government that clears the way for the airline to receive a €9 billion ($9.9 billion) bailout and fend off an insolvency filing.

The board had initially rejected the package on May 25 after it emerged that the EC wanted to force Lufthansa to reduce its hub fleet by 12 aircraft and give up a large portfolio of slots at Munich (MUC) and Frankfurt (FRA).

The terms of the new agreement would see the airline reduce its fleets at both hubs by four aircraft each and make 12 daily slot pairs per airport available to competitors requesting access. For the first 18 months after the agreement the slots would only be available to new entrants. If the slots have not taken up in this time period, only then can existing competitors apply for them, delaying access to the likes of Ryanair and easyJet.

Commenting on the board’s approval after the compromise had been struck with the EC, chairman Karl-Ludwig Kley described endorsing the deal as “a very difficult decision” but one that was necessary. 

“After intensive discussion, we have come to the conclusion to agree to the executive board’s proposal. We recommend that our shareholders follow this path, even if it requires them to make substantial contributions to stabilizing their company. It must be clearly stated, however, that Lufthansa is facing a very difficult road ahead,” Kley said.

There is enormous pressure for a solution to be found. Lufthansa CEO Carsten Spohr told employees on May 28 that paying June salaries at the end of the month could become difficult in the absence of a solution and as Lufthansa is beginning to run short on liquidity.

The German government agreed the €9 billion rescue package through its economic stabilization fund (WSF), a vehicle created to help large corporations through the coronavirus pandemic. As part of the deal, the government will take a 20% stake and a silent participation worth €5.7 billion as well as arrange a €3 billion loan through state-owned bank KfW.

The agreement now has to get shareholder approval at an extraordinary annual meeting—now scheduled for June 25—as well as formal clearance by the EC.

Lufthansa is currently operating less than 2% of its normal schedule but is aiming to restart around 15% of regular flying by mid-June, a move that will be a further drain on liquidity initially. The airline had more than €4 billion in cash at the end of April, but was burning through its reserves at a rate of €800 million per month. The carrier is also obliged to refund customers up to €1.8 billion for canceled flights.