The capital increase puts Air France under the wing of the government
PARIS (Reuters) – France will contribute to a 4 billion euros ($ 4.7 billion) recapitalization of Air France-KLM and more than double its stake to nearly 30%, according to plans announced on Tuesday with European Union approval.
The move is the latest by a large airline group to consolidate its finances after more than a year of travel stoppages linked to COVID-19 and heavy losses for the sector.
The French government will convert a € 3 billion loan granted last year into a perpetual hybrid bond instrument and subscribe to a € 1 billion share issue, increasing its stake in Air France-KLM by 14, 3% currently.
“This will make the state the largest shareholder of Air France,” said Finance Minister Bruno Le Maire, qualifying this approach as “a sign of commitment” to the airline and its employees.
The agreed conditions demand that France find a “credible exit strategy” within a year and bring its shareholding back to pre-crisis levels by 2027. Dividends, share buybacks and management bonuses are prohibited until most or all of the aid is repaid.
Under the terms approved, Air France will also cede 18 Paris-Orly take-off and landing slots to competitors, or 4% of its current portfolio at the airport.
But breaking with the usual practice which can irritate low-cost competitors like Ryanair, their reassignment will be limited to competing planes based at Orly with crews employed on local contracts.
This will protect a planned expansion of Air France’s low-cost airline, Transavia, from unfair competition, Air France-KLM chief executive Ben Smith told reporters on Tuesday.
Restrictions on reallocation of slots were “one of the sticking points” in the protracted talks with Brussels, Le Maire said. “We don’t want social dumping.
Ryanair did not immediately respond to a request for comment.
Other measures include the extension of state guarantees on 4 billion euros of bank loans to Air France-KLM.
Deutsche Bank, HSBC and Natixis are advising the airline on its refinancing.
The bailout is the closest to a re-nationalization of a major European carrier, after Germany took a 16.7% stake in Lufthansa as part of its bailout.
The Netherlands, which bought 14% of Air France-KLM in 2019 to counter French influence, will not join the capital increase, thus breaking a governance impasse within the group while potentially adding to the breaking pressures from certain Dutch political circles.
The probable dilution of the Dutch government’s stake to 9.3% “has no impact on the protection of public interests,” Dutch Finance Minister Wopke Hoekstra said on Tuesday.
Dutch authorities are in separate talks with Brussels over new support for KLM that could lead to a similar conversion of the state’s € 1 billion loan into hybrid debt.
Delta Air Lines, an 8.8% shareholder of Air France-KLM, is prohibited from investing under US federal aid rules and will be diluted. China Eastern plans to acquire new shares while keeping its stake below 10%, the group said.
Air France-KLM shares traded up 0.3% to 5.26 euros at 09:18 GMT. The stock is down nearly 50% from pre-pandemic levels, partly reflecting the likelihood of further dilutive capital increases.
The group said it would seek shareholder approval next month for “additional measures” to strengthen the balance sheet and reduce net debt to a target of twice earnings before interest, depreciation, taxes and amortization ( EBIDTA) by 2023.
Updating its forecasts, Air France-KLM has indicated that it expects an EBITDA loss of 750 million euros for the first quarter, against its deficit of 1.7 billion euros for the whole of 2020. budget, he added.
The group said it “still expects a significant upturn in demand” as COVID-19 vaccination campaigns allow summer travel to resume in the coming months.
($ 1 = € 0.8467)
Reporting by Laurence Frost and Dominique Vidalon Additional reporting by Toby Sterling in Amsterdam and Foo Yun Chee in Brussels Editing by David Goodman and Mark Potter