Air France-KLM Secures $7.6B Loan From French Government

Credit: Air France-KLM Group

The French state will grant Air France-KLM a total of €7 billion ($7.6 billion) in loans to help it weather the COVID-19 crisis, and longer-term may consider increasing its stake, the Franco-Dutch airline group said April 24. 

Air France-KLM will have access to a French state-backed loan of €4 billion granted by a syndicate of six banks to Air France-KLM and Air France, guaranteed up to 90% by the French state, with a maturity of 12 months, with two consecutive one-year extension options exercisable by Air France-KLM.

The group will also benefit from a direct shareholder’s loan of €3 billion from the French state to Air France-KLM with a maturity of four years, with two consecutive one-year extension options exercisable by Air France-KLM. The French state owns 14.3% of Air France-KLM while the Netherlands government holds 14%. 

The company said the plan was still being finalized. When visibility on post-crisis levels of air traffic became available, the board of directors may consider increasing its equity capital subject to market conditions.

“In this context, the French state has indicated its intention to examine the conditions under which it might participate in such an operation to increase its capital,” the company added.

The Air France-KLM group had previously said that despite measures it had taken to preserve its liquidity—including securing payment deferrals for social charges, taxes and payments to lessors and airports, earmarking further cost cuts, retiring some aircraft early, reducing capital expenditure plans and cutting senior executives’ pay—it would need extra funding in the third quarter to survive the crisis, which has brought air travel to almost a complete halt around the globe. 

“This aid mechanism, which remains subject to approval by the European Commission, will enable the Air France-KLM group to provide Air France with the means necessary to meet its obligations by continuing its transformation in order to adapt in a sector that the global crisis will severely disrupt,” Air France-KLM said in a statement. 

“This exceptional support from the French government is not a blank cheque,” CEO Ben Smith also said in a video message to staff. “Faced with the upheaval the world is going through we are going to have to rethink our model immediately.”

Smith said the group’s transformation would now work towards one single priority of regaining economic and financial security as quickly as possible “in order to survive in this ferociously competitive marketplace in which we operate.” 

Smith also pledged to focus on environmental transformation, reflecting calls for state aid to airlines to be contingent on greater efforts to improve sustainability. 

“We must dedicate our efforts to imagining and implementing a more environmentally friendly aviation model,” Smith said. “I believe this crisis could have a silver lining.” 

The Dutch state has also stated its intention to support KLM and “discussions to finalize the aspects and conditions of an additional aid are ongoing,” the group added.

The group said it would finalize a transformation plan in the coming months, including economic, financial and environmental commitments and a review of Air France’s activities to adapt them to the new market reality brought about by the crisis. The company will have to strengthen its financial situation, the group said. It also pledged to include an “ambitious environmental roadmap to accelerate the group’s sustainable transition.”

Air France-KLM has seen its flight activity cut drastically since the coronavirus crisis began and expects it to remain at around 10% of 2019 levels for the coming months. 

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%.

Helen Massy-Beresford

Based in Paris, Helen Massy-Beresford covers European and Middle Eastern airlines, the European Commission’s air transport policy and the air cargo industry for Aviation Week & Space Technology and Aviation Daily.