Capital hike brings Air France under government’s wing
France will contribute to a 4 billion-euro ($4.7 billion) recapitalisation of Air France-KLM and more than double its stake to nearly 30%, under plans announced on Tuesday with European Union approval.
The French government will convert a 3 billion-euro loan granted last year into a perpetual hybrid bond instrument and subscribe to a 1 billion-euro share issue, raising its stake in Air France-KLM from the current 14.3%.
“This will make the state Air France’s biggest shareholder,” Finance Minister Bruno Le Maire said, describing the step as a “sign of commitment” to the airline and its workers.
The agreed conditions require France to find a “credible exit strategy” within a year and cut its shareholding to pre-crisis levels by 2027. Dividends, share buybacks and management bonuses are barred until most or all of the aid is repaid.
Under the approved terms, Air France will also give up 18 Paris-Orly take-off and landing slots to competitors, amounting to 4% of its current portfolio at the airport.
But in a break with usual practice that may anger low-cost competitors such as Ryanair, their reallocation will be restricted to Orly-based rival aircraft with crews employed on local contracts.
That will shield a planned expansion of Air France’s own budget carrier Transavia from unfair competition, Air France-KLM Chief Executive Ben Smith told reporters on Tuesday.
The restrictions on slot reallocation were “one of the sticking points” in drawn-out talks with Brussels, Le Maire said. “We do not want any social dumping.”
Ryanair did not immediately respond to a request for comment.
Other measures include the extension of state guarantees on 4 billion euros in bank lending to Air France-KLM.
Deutsche Bank, HSBC and Natixis are advising the airline on its refinancing.
The bailout is the closest a major European carrier has come to renationalisation, after Germany took a 16.7% Lufthansa holding as part of its rescue package.
The Netherlands, which bought 14% of Air France-KLM in 2019 to counter French influence, will not join the capital hike – breaking a governance stalemate at the group while potentially adding to break-up pressures from some Dutch political quarters.
The likely dilution of the Dutch government’s stake to 9.3% “has no consequences for the protection of public interests”, Dutch Finance Minister Wopke Hoekstra told lawmakers on Tuesday.
Dutch officials are in separate talks with Brussels over new support for KLM likely to entail a similar conversion of the state’s 1 billion euro loan into hybrid debt.
Delta Air Lines, an 8.8% shareholder in Air France-KLM, is barred from investing under U.S. federal aid rules and will be diluted. China Eastern plans to acquire new stock while keeping its stake below 10%, the group said.
Air France-KLM shares were trading 0.3% higher at 5.26 euros as of 0918 GMT. The stock is down almost 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 cut net debt to a target of two times earnings before interest, depreciation, tax and amortisation (EBIDTA) by 2023.
Updating forecasts, Air France-KLM said it expected an EBITDA loss of 750 million euros for the first quarter, compared with its 1.7 billion euro deficit for the whole of 2020. Results for January-February were better than expected and capital expenditure 10% below budget, it added.