Air France-KLM may seek further recapitalisation

French finance minister says door is left open for more support

France and the Netherlands last year granted Air France-KLM a total of €10.4bn  in direct loans and state-backed guarantees

France and the Netherlands last year granted Air France-KLM a total of €10.4bn in direct loans and state-backed guarantees

 

Air France-KLM chief executive Ben Smith indicated the struggling airline could seek a further recapitalisation later this year even after the latest €4 billion rescue from the French government that includes the sale of new shares.

“We do have heavy, heavy debt that is holding back our balance sheet,” the CEO said on Monday at the virtually-held World Aviation Festival conference. “This may have to get looked at later in the year.”

Mr Smith raised the possibility of another operation to bolster the carrier’s balance sheet at a time when uncertainty is weighing on the rebound in air travel in Europe.

While some countries are lifting lockdown measures, the vaccine rollout has been slow and the reopening of shops and restaurants has not necessarily led to relaxing border controls and quarantine requirements.

The airline said earlier this month that the latest support by France was only a “first step” in repairing its balance sheet, while finance minister Bruno Le Maire also left the door open for more support.

Part of the most recent rescue plan is a capital increase of about €1 billion, which is set to be wrapped up on Monday.

That will see the French government increase its stake while relegating its Dutch counterpart, which opted not to participate. China Eastern Airlines, another existing investor, is among those taking part.

“Banks, financial analysts, funds have been telling us that it’s been positive, more positive that I would have expected,” Mr Smith said of the share issue.

New package

The Netherlands is widely expected to announce its own support for the carrier. Mr Smith said talks were ongoing between the European Commission and the Dutch state, which has already received approval to convert debt to equity. He declined to say when any new package could be unveiled.

France and the Netherlands last year granted the group a total of €10.4 billion in direct loans and state-backed guarantees.

This served to inflate its debt load, while cash burn accelerated toward the end of the year when the health crisis worsened again.

The subsequent €4 billion French package for Air France includes the ongoing capital increase, which could take the government’s stake to just shy of 30 per cent , and the conversion of an earlier €3 billion French state loan into hybrid instruments.

Stemming the airline’s cash burn and returning to a cash-neutral position will come from carrying more customers and cargo, Mr Smith said.

The airline is planning to raise capacity to at least 50 per cent during the summer months.

European airlines are pinning their hopes on a travel rebound, and have pointed to vaccination rollouts as critical steps, along with so-called immunity passports that would allow travellers to provide proof of Covid-19 inoculation, recovery or a negative test. The EU is aiming to roll out “digital green certificates” in time for holiday travel.

“I’m reasonably encouraged” that some kind of vaccine-passport system will be in place by the summer, Mr Smith said, adding that he is also “hopeful” that it will be easier to make transatlantic journeys in the coming months.

– Bloomberg