Air France-KLM obtains $ 4.7 billion in state aid to survive

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Air France-KLM will receive up to 4 billion euros ($ 4.7 billion) in a French bailout that may not be enough to see the beleaguered carrier through the still raging pandemic.

The package will see the French government reemerge as the biggest investor with a stake that could be just under 30%. It comes after months of difficult negotiations between French and Dutch shareholders, and the European Commission, which has given its blessing. The plan aims to give the carrier some leeway as it faces one of the worst crises to hit the airline industry.

With discussions still underway for possible additional financial assistance from the Dutch state as well as measures still unspecified for the whole group in the coming year, “it is not the end of actions to strengthen the balance sheet, ”Bernstein analyst Daniel Roeska said in a note.

France’s long-awaited package comes amid a Covid-19 outbreak in the region that has forced new lockdown measures in the country and led the UK to sway on a May 17 goal to reopen for overseas travel. The pandemic has been particularly brutal on European airlines and prompted further rescues, with the German government taking a 20% stake in Deutsche Lufthansa AG and Italy completely nationalize their bankruptcy Alitalia SpA.

For Air France-KLM, “this is the first step” in repairing the unprecedented financial damage caused by the pandemic, financial director Frédéric Gagey said in a phone call Tuesday with journalists. The support for Air France “should be followed by other equity measures” to allow Air France-KLM to return to a normal level of debt, he said.

Shares remained virtually unchanged at 2:04 p.m. in Paris.

Plan details

The French plan aims to ease the carrier’s heavy indebtedness, which exploded last year when the two shareholder governments granted a total of € 10.4 billion in direct loans and state-guaranteed guarantees in response to the initial virus wave, when air traffic has come to a virtual standstill.

France will convert its direct loan of 3 billion euros into hybrid instruments. The airline will also carry out a capital increase of until 1 billion euros. The transaction will bring cash and lead to a reshuffle of the airline’s shareholding structure.

The French state will participate in the recapitalization “while maintaining its participation strictly below 30% of the share capital and voting rights,” the airline said in a press release. declaration. Shareholder China Eastern Airlines will also participate but will keep its participation below 10%. Delta Airlines, which owns 8.8%, and the Dutch state, which has around 14%, will not subscribe.

France does not intend to own more than 29.9% of the capital of Air France-KLM or to take control of the carrier, the French and Dutch ministers said in a statement declaration. A Dutch package is still being studied and negotiated, they said.

“The urgent need for KLM is less urgent,” said Dutch finance minister WopKe Hoekstra wrote on Twitter, telling Parliament in a letter that the Dutch stake could drop to around 9.3% after the capital increase.


France and the Netherlands have often been at odds since the Air France and KLM merger in 2004, with the Dutch branch long feeling French control, lower Air France profitability and history of labor disputes. .

The sneak acquisition by the Netherlands of a stake in the carrier just over two years ago sparked a unprecedented spitting. Although the move blinded Paris and exposed the Netherlands’ intention to exert more influence over Air France-KLM, it is not yet clear how this will work when France increases its stake.

By granting permission for the aid package, the EU secured conditions to offset antitrust concerns. CEO Ben Smith called talks with the Commission “long and arduous,” but said the 18 daily slots the airline is expected to give up at Orly airport, outside Paris, to competition will not harm its plans to extend its low-cost. Transavia arm.

The airline has more than 300 slots at Orly and 1000 in total serving the French capital when those at Paris-Charles de Gaulle are included. Any carrier that acquires slots from Air France must base its planes and crews at the airport “in compliance with national and European labor laws,” according to the press release. France has long accused its budget rivals of bending employee rules to cut costs.

What Bloomberg Intelligence Says:

“While the vaccine rollout offers Air France-KLM a possible path to recovery, we believe the company will face many headwinds in 2021, including a slow rebound in demand for long-haul travel and a inflated cost structure. “

– Rob Barnett, BI Analyst

The airline warned on Tuesday that the third wave of the pandemic and ongoing travel restrictions had hurt first quarter results. He expects an operating loss of around 1.3 billion euros.

– With the help of William Horobin, James Regan and Diederik Baazil

(Add details on Dutch operation from 10th paragraph.)

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