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Brussels authorizes the French state to inject 4 billion into the capital of Air France – RT en français

Exceptionally, the European Commission has approved a 4 billion euro aid plan for the alliance. It allows the French State to convert a loan of 3 billion euros into equity and to increase its participation.

“France will contribute up to 4 billion euros to strengthen Air France’s equity capital and help the airline cope with the financial difficulties resulting from the coronavirus epidemic”, explains the vice-president of the European Commission responsible for competition Margrethe Vestager in a press release published on April 6.

Of these 4 billion, 3 have already been paid to Holding Air France-KLM in 2020 as part of a loan of 7 billion euros. They will be converted into “a hybrid capital instrument [à mi-chemin entre une part du capital et un titre de dette]”. In addition, the State will be able to provide one billion euros via a capital increase “open to existing shareholders and to the market”.

Interviewed on France Inter in the morning, the Minister of the Economy, Finance and Recovery Bruno Le Maire suggested that the State’s participation in the capital of Air France could be “a little less than 30 % [contre 14,3% actuellement] so as not to take the full capital of the company ”.

AFP specifies that among the largest shareholders of Air France-KLM, only the French State and China Eastern – which currently holds 8.8% of the shares – will participate in the capital increase, the Chinese company committing to stay below 10%. The American group Delta Air Lines, currently a shareholder at the same level as China Eastern, will not participate in the operation because the American regulations prohibit it.

As for the Dutch State, which currently owns 14%, it will not participate in the capital increase and its participation will be mathematically reduced at the end of the operation. But, while it had risen without consultation with Paris to the capital of the holding in 2019 – officially to defend the interests of the Netherlands – the Dutch government this time judged in a letter sent on April 6 to Parliament and quoted by Reuters: “This change in the proportion of shareholders has no impact on the preservation of public interests.”

A series of conditions

The public support from Paris approved by Brussels will however be accompanied by a series of conditions: Air France will first have to make 18 slots available to competing carriers at the congested Paris Orly airport. However, these measures require that the competing carrier “bases its planes and crews at Paris Orly airport, in compliance with national and European labor laws”, according to the commission’s statement.

“That was one of the hard points of the negotiations, we do not want social dumping or fiscal dumping on the part of the airlines which would recover these slots,” replied the Minister, urged by journalist Léa Salamé to say whether these slots could be allocated to companies low-cost like Ryan Air.

Among the conditions for authorizing the aid plan, it is also expected that the French State “will receive an appropriate remuneration” and will have to present within 12 months a plan to reduce, in time, its participation in the capital. In addition, Air France and its holding company will be subject to a ban on paying dividends and buying back shares until the recapitalization has been reimbursed at 100%. In addition, “a strict limitation of the remuneration of the management including a ban on bonuses is applied until 75% of the advance of the State shareholder converted into capital has been repaid.

KLM, the Dutch partner in the Air France-KLM group, will not benefit from the aid, according to the European Commission. Air France-KLM announced on April 6 forecast an operating loss of 1.3 billion euros in the first quarter of 2021 but its managing director Benjamin Smith judged that public aid would bring it “greater stability to go from forward when the recovery begins ”. The company ensured in the wake that it still foresees for this year “a significant recovery in demand”.

The markets reacted to the announcement of the aid plan in a contradictory manner, the Air France – KLM share gaining more than 2% at the opening before losing 0.55% at midday.

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