MIAMI – French flag carrier Air France (AF) is set to receive a €7bn aid package from the French government in the form of loans and commercial funding.
In its decision, the European Commission argued that other means of obtaining liquidity have been “explored and exhausted.”
Across the EU, governments are trying to find ways to keep their respective airlines afloat. The Netherlands has plans to provide €2-4bn to KLM, the other half of the Air-France KLM parent group while Italy has an interest in taking over bankrupt flag carrier Alitalia (AZ).
With the bailout, AF plans to reduce domestic services, said Finance Minister Bruno Le Maire. With high-speed trains which are more environmentally friendly, domestic flights “aren’t justified” he added.
Air France agreed to slash domestic capacity by 40% in an effort to reduce carbon emissions.
Job Cuts and Financial Stability
After receiving the aid package, Air France-KLM CEO Ben Smith ordered a large restructuring of the airline, in the process reportedly eliminating 8,300 jobs made up by 300 pilots, 2,000 cabin crew, and 6,000 ground staff, totaling a whopping 17% of the airline’s workforce.
Smith will be offering voluntary terminations and wants to avoid enforced ones in hopes of avoiding political backlash, now that AF just received a large amount of cash.
Junior Transport Minister Jean-Baptiste Djebbari on his part stated that any changes at the airline should be achieved “without social suffering.”
Accelerated overhaul needed
The airline lost €200m in 2019, and Smith warns that a voluntary termination program might not be enough to meet strict environmental targets and get the airline to financially break-even next year.
Moreover, Smith says the airline needs an “accelerated overhaul” to achieve this, and that could include expansion of budget airline Transavia (HV), and the phasing out of Hop (A5) routes.
“We can see that people need to travel again and will gradually be resuming services to 150 destinations in France, Europe, and the rest of the world this summer” says Air France CEO Anne Rigail. Those 150 flights are about 80% of the airline’s usual route network, and Ben Smith doesn’t expect to see 2019-like demand for at least two years.