Air France and KLM will benefit from a combined EUR 9 to 11 billion in state aid from the French and Dutch governments, both announced separately on April 24. The package will give the Franco-Dutch airline group much-needed liquidity to bridge at least the next couple of weeks. Additional aid and even a partial bailout by the Dutch isn’t ruled out by the Minister of Finance Wopke Hoekstra.
The aid packages were presented at separate press events in Paris and The Hague. French minister of Finance Bruno Le Maire said on French television that the state will provide a state-backed loan to Air France-KLM and Air France of EUR 4 billion, which has been granted by a syndicate of six French banks. The state is guaranteeing this loan for 90 percent with a maturity of one year which can be extended by another year twice.
Also, the French will provide a EUR 3 billion direct loan to Air France-KLM with a maturity of four years, also with an extension possible twice.
Exact Dutch aid to be determined
His Dutch counterpart was less detailed in the exact amount as negotiations with banks are on-going, but the government plans to provide aid of EUR 2 to 4 billion in a combination of loan guarantees and direct aid. Hoekstra stressed this aid is exclusively for KLM, although he didn’t rule out that part of the aid will also end up at the holding.
Hoekstra said that Air France-KLM liquidity position was only sufficient for a few more weeks, so it was in urgent need of a solution. “With this capital injection, they can go forward and hopefully continue without further aid.” The airline group said earlier that without state support its cash would have been drained by Q3.
However, the Dutch minister didn’t rule out a further capital injection if there will be a prolonged critical situation. That’s where a potential additional investment by the government as a shareholder (14.3 percent) comes into the picture, but Hoekstra said it is too early to speculate on this. It also depends on what other shareholders (the French state, Delta Airlines, China Eastern) are prepared to do. In his investor’s call on Wednesday, Delta CEO Ed Bastian made it clear his airline isn’t in a position to provide additional capital to any of the airlines it has stakes in.
Hoekstra and his colleague of transport, Cora van Nieuwenhuizen, were clear that the Dutch package is conditional. For the maturity of any loans, KLM must refrain from dividends and bonuses, reduce salaries of all of its staff but especially top management (“The strongest shoulders should bear the heaviest loads”), and come up with a restructuring or transformation plan for the airline. This plan is also mentioned in the French release and includes both Air France and KLM. “Even before this crisis, analysts were critical of the cost structure of the company, so something must be done here”, said Hoekstra.
Aid KLM also conditional on sustainability targets
Van Nieuwenhuizen added that KLM must contribute to more sustainability and reduction of noise pollution. “We are in discussion about the terms, but you must think of a reduction in night flights and CO2-reductions”, she said. These conditions have been advocated by environmentalist organizations like Greenpeace as well as leftist parties in the Dutch parliament, who have been very critical of providing state aid to the airline industry. “We need to be reasonable and fair to the Dutch taxpayers”, Van Nieuwenhuizen said.
In the press release of Air France-KLM, Group CEO Benjamin Smith thanked the French and Dutch governments for their help: “This aid, along with the Group’s action plan, will enable us to withstand this crisis and foresee the future of Air France-KLM with ambition and determination. We are a strong Group and we are united in the face of this crisis.”
Smith was the subject of much debate a day prior to Friday’s announcement because of a bonus proposal. He would be eligible to a 122 percent bonus if he succeeded in attracting state aid. The proposal was withdrawn after much opposition, including that of Hoekstra.
KLM CEO Pieter Elbers found himself in the spotlight because of a 25 percent increase of his bonus, also withdrawn after much debate a week earlier. Elbers also has accepted a 20 percent pay cut. In a statement on the Dutch aid is package, Elbers thanked the government. In reference to the conditions set in the aid package, he remarked: “The Netherlands can count on our full support and we will repay the trust in our company.”