Air France-KLM to Get State Rescue of as Much as $12 Billion

Air France-KLM became the latest carrier to get a state-backed bailout, with the French and Dutch government shareholders pledging as much as 11 billion euros ($11.9 billion) in loans and guarantees to help it weather the coronavirus pandemic that has brought global air travel to a near standstill.

France agreed to extend 4 billion euros of state-backed commercial funding and 3 billion euros of direct government loans, Finance Minister Bruno Le Maire said on TF1 television Friday. The funds will be destined for the French arm, Air France, the group said in a statement.

The Dutch government plans to provide between 2 billion euros and 4 billion euros to KLM, the company’s Dutch operation, through a loan and guarantees, Finance Minister Wopke Hoekstra said at a press briefing in The Hague posted online by broadcaster NOS. Precise details are still being worked out, he said, and the government will impose conditions including a halt on paying dividends and bonuses for as long as the airline receives the support.

The deals offer Air France-KLM a lifeline as airlines fight to survive the worst crisis in the industry’s history. As the coronavirus crisis grounded planes worldwide, the French government quickly singled out the carrier as a priority for state aid, promising “massive support” for a national symbol that has been forced to cancel roughly 95% of its flights.

“We have to save our national airline,” Le Maire said Friday.

Equity Issue

The company said it may raise new equity once it has better visibility on post-crisis traffic levels. “This could occur at the latest following the board meeting scheduled to approve the financial statements for 2020,” Air France-KLM said in the statement.

“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 said.

The state support for Air France-KLM comes after U.S. airlines reached preliminary deals to access billions of dollars in federal aid and as European rival Deutsche Lufthansa AG closes in on a government-orchestrated bailout from four countries after warning of an impending cash crunch. The spread of the virus from China to Europe and the Americas has strangled air travel after governments shut borders and imposed shelter-at-home measures.

Air France-KLM, which ranks second in Europe after Lufthansa in terms of passenger traffic, warned on April 9 that without additional financing, it would need to raise liquidity in the third quarter. The company has already slashed costs, shelved investment plans and sent part of its fleet into early retirement. Its French and Dutch arms have been discussing added financing with their respective governments and with financial institutions for the past weeks.

French-Dutch Rift

France and the Netherlands are the carrier’s biggest investors, with the Dutch government’s move to purchase a stake having created suspicion between the countries. The separate aid packages signal that the rift still hasn’t mended. Both countries have notified the European Commission and are in talks to get the necessary approval for the aid.

“Ministers Bruno Le Maire and Wopke Hoekstra share the same priority for Air France-KLM: take all necessary measures both in France and in the Netherlands to help the group overcome this severe pandemic crisis,” the officials said in a joint statement. “Their unique focus right now is preserving the financial and operational situation of the Air France KLM Group.”

Air France-KLM expects to operate less than 10% of normal flight activity in coming months.

The state-backed loan will come from a syndicate of six banks, Air France-KLM said in a statement. The 12-month loan to the group and Air France will be 90% guaranteed by the French government. The funds that come from the French state directly will have a four-year maturity. Both loans include the option to extend by a year, twice, exercisable by Air France-KLM.