10 April, 2020

Air France and KLM having in-depth discussions with governments for bail-out funds as minister says "we want to save at all costs this French industrial champion."

 Enough cash to last three months!

It was no surprise earlier this week the Air France-KLM Group confirmed that Air France and KLM were holding 'in-depth' discussions with the French and Dutch governments respectively over bailout funds.  The group also confirmed that discussions were also ongoing with some other financial institutions and potential investors in order to buy their way out of the financial instability caused by the coronavirus COVID-19 pandemic.

Due to the increasingly strict measures taken by many countries regarding air travel and entry restrictions, the Air France-KLM Group has, much like almost all airlines around the world, had to drastically reduce its flight schedule, down to a tenth of what it was this time last year. Such a massive drop in flights, with no end date in sight for the suspension, has left the group with no option but to seek additional methods of finance in order to keep going after it said it had enough month to last just three more months. 

"We are facing an unprecedented crisis affecting without exception the airline industry, which is causing a great deal of uncertainty about the outlook for air transport," said Benjamin Smith, Chief Executive Officer of Air France-KLM. "Since the beginning of this crisis, the Air France-KLM Group has done everything possible to ensure the health safety of its employees and customers and, on the financial side, to preserve its short-term liquidity and prepare for the future."

The Canadian CEO added "Emergency measures have been rapidly implemented to reduce our costs and investments. I salute the exceptional commitment of our employees, who are giving their best in these difficult times."

Indeed the group has made a strong effort in order to reduce its costs, these have included:
Air France grounding its remaining Airbus A380s
KLM retiring its Boeing 747s
Conducted negotiations with lessors and airports regarding payment deferrals
Implementation by Air France of partial activity measures and application by KLM for the ‘Temporary Emergency Bridging Measure for Sustained Employment’ (NOW), with an impact estimated at this stage at around €1.1 billion for 2020
Negotiation with governments of payment deferral for taxes (civil aviation, solidarity…), social contribution and various charges
Cost reduction measures, estimated at this stage at €500 million in 2020, an increase of €300 million compared to previous announcements

Smith continued "It is now clearer than ever that support from our both Dutch and French governments is needed to meet our cash requirements and enable us to continue our operations once the crisis is over. Discussions with them and financial partners are ongoing, and I am confident in their willingness to support us and the future of the Air France-KLM Group, a key player for employment and the greater economies of our two nations, whose flags our airlines fly around the world. "

When KLM first started talks with the Dutch government,  there as some media briefings that certain politicians were not at all happy parting with taxpayers money to bail out the French side of the company -  the area with the biggest debts and the most losses. Some are more agreeable to working jointly with the French administration on a package for the group, especially after the Dutch government investment was greatly increased last year. 

The French seem certain to award a massive financial boost to Air France - which according to some reports could be around the 6 to 7 billion euro level. "Air France is losing billions of euros per month. Air France is not going to need a boost, but rather massive support from the state," French finance minister Bruno Le Maire said on France 2 television. "Air France will get this support from the state, we want to save at all costs this French industrial champion."

On the radio on Friday, Le Maire said: “We’re ready to step in and support Air France when the time comes, no doubt very soon,”.

An announcement is expected next week. 

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