Air France-KLM secures at least €9bn in Franco-Dutch loans

Air France-KLM has won close to €10bn in state aid from both the French and Dutch government as it seeks to avoid a liquidity crunch due to the economic effects of the coronavirus on the airline sector.

The French government confirmed on Friday evening that it had agreed a €7bn loan package for the airline while the Dutch government said that it was still in talks but pledged between €2bn and €4bn.

“Air France’s planes are grounded, so we need to support Air France,” said Bruno Le Maire, French finance minister, on television on Friday evening adding that the loans would come with conditions including that “Air France must become the most environmentally friendly company on the planet”.

Mr Le Maire also confirmed that France is working on a deal for carmaker Renault which will be worth around €5bn.

Air France-KLM’s shares have dropped by 55 per cent so far this year as the whole airline sector has been devastated by the lockdowns put in place to stop the spread of coronavirus.

The aid from the French government will take the form of a €4bn loan, 90 per cent of which will be guaranteed by the state, and which will be granted by a consortium of six French and international banks. It has a maturity of 12 months, with two consecutive one-year extension options exercisable by Air France-KLM.

Another €3bn will be in the form of a direct loan from the state as part of a €20bn fund managed by the Agence des participations de l’État, which is in charge of the government’s equity holdings. That loan will have a maturity of four years, with two consecutive one-year extension options exercisable by Air France-KLM.

The loans, said the French finance ministry without providing further detail, are “intended solely for the needs of the subsidiary Air France.” The state currently holds 14.3 per cent of the airline, while the Dutch state holds 14 per cent. 

“The Dutch state has also stated its intention to support the KLM Group”, the Dutch arm of the airline, and discussions are continuing, said Air France-KLM in a statement on Friday evening.

Wopke Hoekstra, Dutch finance minister, said the Netherlands would pump between €2-4bn of support into KLM.

In return, the Dutch government — which bought its 14 per cent stake in the group last year — would demand that all dividends and bonuses be suspended, Mr Hoekstra said during an emergency press conference on Friday evening. The government will be encouraging KLM’s senior management to make sacrifices in their wages. 

The Dutch finance ministry said it was set to decide on the precise amount of support to be offered but that it was expected to come in the form of a state guarantee and a loan. 

“We have always indicated that we are doing everything we can to help Air France-KLM through this crisis,” said Mr Hoekstra. “The position of Schiphol airport is of great importance for the Dutch economy and jobs.”

Without the funding from the governments, which still must be approved in Brussels, said the group, “a liquidity injection would be necessary in the third quarter of 2020.”

A transformation plan for Air France-KLM “will be finalised in the coming months”, added the airline, and once this has happened and “when better visibility on post-crisis air traffic levels becomes available” the airline will “consider increasing its equity capital subject to market conditions”.

Air France-KLM said “the French state has indicated its intention to examine the conditions under which it might participate in such an operation to increase its capital.”

Should Air France-KLM issue new shares, Mr Hoekstra said the Dutch government would consider increasing its stake in the airline. 

Mr Le Maire also confirmed that the state is preparing a €5bn loan for French carmaker Renault which earlier this week said it was burning through €600m per month in cash, not including working capital. The state is also Renault’s biggest shareholder, with just over 15 per cent of the capital.

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