Air France-KLM Group, Air France likely to receive French govt support to maintain solvency amidst crisis

Prashasti Awasthi Mumbai | Updated on April 25, 2020

The Air France-KLM Group, Air France, and KLM,on Friday, said that they are engaged in talks with the French and Dutch governments regarding the implementation of specific aid measures that would enable them to maintain their solvency.

Air France-KLM Group, a Franco-Dutch airline company, in its earlier release on April 9 said that given the major impact of the Covid-19 crisis, which would weigh heavily on its EBITDA (earnings before interest, taxes, depreciation, and amortization), a liquidity injection would be necessary for the third quarter of 2020.

Following several weeks of discussions with the French state and banking institutions, a support mechanism has been formulated for the airline service for its revival.

This includes - A French state-backed loan of €4 billion granted by a syndicate of six banks to Air France-KLM and Air France. The French state is guaranteeing this loan up to 90 per cent , and it has a maturity of 12 months, with two consecutive one-year extension options exercisable by Air France-KLM. And, 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 airline group stated that this aid mechanism, which remains subject to approval by the severely European Commission, would enable the Air France-KLM Group to provide Air France with the means necessary to meet its obligations. This has to be done because the travelling sector would be impacted by the coronavirus disruption.

The Dutch state has also stated its intention to support the KLM Group. Discussions to finalize the aspects and conditions of an additional aid are ongoing.

Air France-KLM group mentioned that the transformation plan, which will be finalized in the coming months, include economic, financial, and environmental commitments.

Hiking equity capital

After the transformation plan, the Air France-KLM Board of Directors will consider increasing its equity capital subject to market conditions. At the latest, this could occur following the Board meeting scheduled to approve the financial statements for 2020.

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.

Anne-Marie Couderc, Chair of the Air France-KLM Board of Directors said, “On behalf of the Air France-KLM Board of Directors, I would like to thank the French state and our banking partners for this aid, which will enable the Air France-KLM Group to overcome this unprecedented crisis,".

She added: "It is also the recognition of the strategic role our Group plays in the service of France, the Netherlands, and our fellow citizens. The management and all employees of the Air France-KLM Group will undertake every effort to prove ourselves worthy of the trust placed in us.”

Benjamin Smith, CEO of the Air France-KLM Group stated: "On behalf of our Group and its employees, I would like to thank the French state and our banking partners for their support in ensuring the future of the Air France-KLM Group.”

He further said that this aid, along with the Group's action plan, will enable the airline company to withstand this crisis and foresee the future of Air France-KLM with ambition and determination.

Published on April 25, 2020

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