Air France-KLM In Talks With French, Dutch Governments On State Aid

PARIS—Air France-KLM said it had entered “in-depth” discussions with the French and Netherlands governments over the financing the group will need to weather the COVID-19 crisis and is confident the two nations will support it.   

The airline group’s flight activity has deteriorated and is expected to remain at around 10% of 2019 levels for the coming months. Air France-KLM’s April 9 statement comes a few days after French media reported that the group was negotiating state-backed loans of up to €6 billion ($6.5 billion) with the two governments. The group declined to comment on those reports at the time. 

The French state holds a 14.3% of Air France-KLM, while the Netherlands holds 14%, after it controversially bought a stake a year ago in order to ensure its voice was heard on strategic decisions for the group. 

France’s economy minister Bruno Le Maire has previously pledged to support big companies hit by the COVID-19 crisis, including Air France-KLM, with options including stakes, recapitalization or even nationalization.  

Le Maire told France 2 television April 8 that France wanted to preserve the airline “at any cost” and would provide it with the “massive support” it would need.  

“In view of increasingly strict measures taken by many countries, including restrictions on travel opportunities or border closures, the Air France-KLM group has drastically reduced its flight activity, which over the next few months should be less than 10% of last year’s level,” the airline group said April 9. Earlier in the day it had reported that overall group passenger numbers fell 56.6% in March to 3.6 million, including the two main airline brands as well as low cost unit Transavia, with a 50.6% drop in traffic and a load factor 20.5 points lower at 67.1%.

The group said that based on its current best estimates, without additional financing, it would face a liquidity requirement in the third quarter of 2020. “As the crisis continues, the conditions for a recovery remain uncertain, both in terms of our air operations, but more generally in terms of the timetable for economic and demand recovery,” the company said. “As a result, the Air France-KLM Group ... have entered into in-depth discussions with their respective governments and financial institutions in order to grant the resources that will enable them to secure and sustain adequate levels of liquidity by all means, notably within the framework of the European Commission’s Temporary Framework on State Aid in force published on 19 March 2020.”

The group said it was confident it would be able to obtain additional financing to meet its future financial obligations and ensure the recovery of its activity beyond the current crisis.

“We are facing an unprecedented crisis affecting without exception the airline industry, which is causing a great deal of uncertainty about the outlook for air transport,” group CEO Ben Smith said. “It is now clearer than ever that support from our both Dutch and French governments is needed to meet our cash requirements and enable us to continue our operations once the crisis is over. Discussions with them and financial partners are ongoing, and I am confident in their willingness to support us and the future of the Air France-KLM Group, a key player for employment and the greater economies of our two nations, whose flags our airlines fly around the world.“

Since the crisis began, Air France-KLM has secured measures including the deferral of payments taxes and social charges as well as payments to lessors and airports. It has also earmarked increased cost reduction steps worth around €500 million in 2020, up by €300 million compared with previous announcements and secured the possibility of early retirement of certain sub-fleets of aircraft, while implementing partial employment measures adding up to an impact of around €1.1 billion in 2020. 

The group has also reviewed its investment plan, reducing capital expenditure by €700 million in 2020, €350 million more than it had previously announced. 

Air France-KLM’s board members, chair and CEO will also take pay cuts in line with measures applied to the workforce, the group said.