French state to inject up to €4bn into Air France-KLM
Government shareholding in the airline could rise to 29.9%
France will contribute up to €4bn to strengthen Air France-KLM’s balance sheet, potentially doubling its shareholding as it tries to steer the airline through the worst of the Covid-19 pandemic.
The French state, which is already a 14.3 per cent shareholder, will convert €3bn in loans it gave to Air France airline last year into hybrid debt and take part in a planned additional capital raise for up to €1bn.
Overall, the government’s shareholding could rise to 29.9 per cent, making it the largest single shareholder, French finance minister Bruno Le Maire told radio station France Inter on Tuesday morning.
Benjamin Smith, the airline’s chief executive, said: “These first recapitalisation measures . . . provide Air France-KLM with greater stability to move forward when recovery starts, as large-scale vaccination progresses around the world and borders reopen.”
This volley of aid will only benefit the French arm of Air France-KLM, according to the EU.
The Dutch state, which is also a 14 per cent shareholder, will not participate in the new capital raise, Air France-KLM said in a statement on Tuesday morning, but “is continuing discussions with the European Commission regarding potential capital-strengthening measures for KLM.”
Tensions between France and the Netherlands came to a head in 2019 when the Dutch government increased its shareholding to roughly match that of the French state’s, to protect its national interests.
After months of negotiation between France and the EU over concessions needed to get the state aid approved, Air France-KLM had to give up 18 slots for its aircraft at Paris-Orly. That represents 4 per cent of its capacity at the airport but fewer than the 24 slots originally sought by the commission.
Le Maire said there would be restrictions on certain low-cost airlines picking up the slots, to make sure that companies operating at the airport use crews working under French contracts: “We wanted the companies that can recover these slots to strictly respect the social or fiscal rules of the French state. It would have been unfair competition.”
The commission said on Tuesday that France had committed to working out a credible exit strategy within 12 months after the aid was granted, unless the state’s help was reduced below the level of 25 per cent of equity by then.
It added that until the recapitalisation was redeemed, Air France was banned from paying dividends and non-mandatory coupon payments on debt and from making share buybacks. And “until at least 75 per cent of the recapitalisation is redeemed . . . a strict limitation of the remuneration of their management, including a ban on bonus payments, is applied”.
Along with the rest of the sector, Air France-KLM, which was formed by the merger of Air France and KLM of the Netherlands in 2004, has been hammered by the impact of the Covid-19 on tourism and business travel.
With the pandemic slashing demand for air travel, the group recorded a €7.1bn net loss in 2020. On Tuesday, the group said it expected a loss of €1.3bn in the first quarter.
Air France-KLM has already received €10.4bn in loans and state-backed loans, guaranteed by the French and Dutch governments to help it through the pandemic. The French state-backed loan has been extended until 2023, with the Dutch loan due in 2025.
Shares in the company fell 0.4 per cent to €5.11 on Tuesday morning.