What situation is Air France-KLM in?
Still very worrying. Covid-19 and its procession of border closures in 2020 deprived the group of two-thirds of its customers, including profitable long-haul business travelers. Weighted down by large fixed costs, the company lost 7.1 billion euros last year and saw its debt almost double to eleven billion. A thousand jobs will also be cut at Hop !, a regional subsidiary of Air France, including 276 in Morlaix where the maintenance site will be dismantled.
On Tuesday, Air France-KLM said it expected a new operating loss of 1.3 billion euros in the first quarter. The group hopes that the summer season, with the progress of vaccination campaigns, will mark the start of the recovery. Air France-KLM, which has cut back on its costs and its workforce, is however still far from defaulting on payment, since it had, at the end of February, cash and credit lines of € 8.8 billion, an amount nevertheless cut by a billion compared to the end of 2020.
What does the new French state aid represent for the company, and what is its purpose?
This operation is articulated with a first emergency aid of seven billion euros, that is to say three billion of direct loans and four billion of bank loans guaranteed by the State, announced in April 2020.
The three billion in direct loans will be transformed into a “perpetual hybrid bond instrument”, securities halfway between traditional shares and bonds: these amounts will be assimilated to equity. And the group’s debt will be reduced accordingly. The objective for 2023 is to have a net debt that does not exceed double the gross operating surplus, which reflects the company’s ability to honor its debts. This would be, according to CFO Frédéric Gagey, “a level that will allow the group to return to finance on the financial markets.”
At the same time, Air France-KLM will launch a capital increase. The shareholders will have priority, in order to be able, if they wish to maintain their participation. In this context, the French State could increase to nearly 30% of the capital, against 14.3% currently. The Dutch state, which holds 14% of the shares, has decided not to participate in this increase. Ultimately, the French state will again reduce its participation.
What are the conditions for this aid?
Guarantor of balanced competition, the European Commission demanded concessions from the company, in particular in terms of airport slots. It wanted Air France to cede 24 of these slots to Parisian airport of Orly. It will eventually be 18.
The CEO of Air France KLM, Benjamin Smith, said Tuesday that the sale of these slots, coveted in particular by giants of low cost flights like Ryanair, would “not have a major impact on the plan” of transformation already engaged.
Note that Air France KLM will not be able to pay dividends until the aid is repaid.
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