Air France-KLM will receive as much as 4 billion euros ($4.7 billion) from a French rescue plan that may not be enough to see the embattled carrier through the still-raging pandemic.
The package will see the French government reemerge as the biggest shareholder with a stake of much as 30%. It comes after months of negotiations between shareholders France and the Netherlands, and the European Commission. The plan is aimed at giving the carrier some breathing room as it confronts one of the worst crises of the airline industry.
With talks still ongoing for possible additional financial aid from the Netherlands as well as as-yet-unspecified measures for the whole group in the coming year, “this is not the end of actions to strengthen the balance sheet,” Bernstein analyst Daniel Roeska said in a note.
The long-awaited package from France comes amid a surge in Covid-19 across the region that has forced fresh lockdown measures in the country, and led the UK to waver on a May 17 target to reopen for foreign travel.
The pandemic has been particularly brutal on European airlines and has prompted other rescues, with the German government taking a 20% stake in Deutsche Lufthansa AG and Italy fully nationalising bankrupt Alitalia SpA.
For Air France-KLM, “this is the first step” in repairing the unprecedented financial damage wrought by the pandemic, Chief Financial Officer Frederic Gagey said on a call on Tuesday with journalists.
The French plan is aimed at easing the carrier’s heavy debt load, which ballooned last year when the two shareholder governments granted a total of 10.4 billion euros in direct loans and state-backed guarantees in response to the initial virus wave, when air traffic came to a virtual standstill.
France will convert its 3 billion-euro direct loan into hybrid instruments. The airline will also proceed with a capital increase of up to 1 billion euros. The operation will bring in cash and lead to a re-jigging of the airline’s shareholding.
The French State will participate in the recapitalisation “while keeping its stake strictly below 30% of the share capital and voting rights,” the airline said in a statement.
Shareholder China Eastern Airlines will also take part but keep its holding below 10%. Delta Airlines, which has 8.8%, and the Dutch state, which has about 14%, won’t subscribe.
France and the Netherlands have often been at odds since the 2004 merger of Air France and KLM, with the Dutch arm long resenting French control, Air France’s weaker margins and history of labour conflict.