Photo: Maarten Visser

LONDON – The Air France-KLM Group has approved a €3.4bn bailout for the KLM (KL) wing from the Dutch government.

This news after comes this month’s announcement from the Air France (AF) side to which the French government gave a €7bn bailout.

This means in total, the Group has received a bailout of €10.4bn.

Photo: Nick Van Der Hoek

Opposition Formed to The Bailout

The measure has already been met with opposition, with Ryanair (FR) Chief Executive Officer Michael O’Leary deeming this as illegal.

“16 years after Air France’s takeover of KLM, every Dutch citizen now has to pay €200 each to prop-up Air France-KLM, while each French citizen will only pay a subsidy of €100.”

“This is a poor deal for the “trading nation,” which likes to lecture other EU countries about fiscal rules but has no problem breaking these rules when it comes to subsidising KLM.”

A call to Block The Measure

“This Dutch government subsidy is also bad news for competition and consumer interests as it will further delay the necessary reforms at the bloated Air France-KLM. For this €200 KLM subsidy, every Dutch man, woman and child could buy 5 flights with Ryanair, instead of paying for the failure and inefficiency at Air France-KLM.”  

“We call on the European Commission to block this subsidy doping to KLM, which will further reduce competition and consumer choice in the Dutch and French markets.”

The statement from Ryanair even referred to the Lufthansa (LH) bailout earlier this week by saying that “the Dutch govt are great at preaching fiscal conservatism to other EU countries but when it comes to bailing out flag carrier airlines they write subsidy checks even faster than Mrs. Merkel.”

Photo: FlightGlobal

Bailout Details

The breakdown of the bailout for KLM is €2.4bn across 11 different banks with a maturity of five years as well as a direct loan of €1bn from the Dutch state with a maturity of 5.5 years.

It has also been confirmed that dividend payments to shareholders have been suspended until the two loans have been paid off.

Commenting on the deal was Benjamin Smith, the CEO of Air France-KLM Group who expressed thanks to the Dutch state and to the banks.

“On behalf of all the employees at the Air France-KLM Group, I would like to thank the Dutch State and the financial institutions for their support to KLM in this unprecedented crisis for the airline industry.”

“KLM is a strategic asset for the Netherlands, and I’m pleased to have seen the country rally around this national champion during this very challenging period.”

Comments from KLM CEO

Also commenting on the news was KLM CEO Pieter Elbers who expressed that this bailout is a significant lifeline to the carrier.

“Due to COVID-19, KLM is currently in an unprecedented crisis”.

“The financing package is necessary to secure the long and difficult road of recovery in the coming period. This is a very important step and I express my gratitude on behalf of all KLM colleagues to the Dutch state and the banks for their confidence in our organisation and our future.”

Air France-KLM noted that the bailout deal is still yet to be approved by the European Commission but based on its approval of the Lufthansa bailout deal this week, it is likely that it will pass.

This now means bailout terms are more or less complete now for the Group.

Faltering Results… Bailout Definitely Required

First-quarter results from this year reported an €815m loss due to the ongoing COVID-19 pandemic, which was attributed to a €922m loss in revenue and net debt ratio rising to 1.8x as opposed to 1.5x for that same period last year.

The financials of the group also stated that it aims to operate at -95% of capacity in the second quarter before migrating to -80% by the third quarter.

A Vital lifeline

One way it will restructure is to reduce its capacity by 20% in 2021 compared to the pre-COVID levels last year.

In-all, it remains clear that like with the Lufthansa Group, a vital lifeline has been handed to yet another major player within Europe.

Whether this will help the carrier get through to the recovery stages will be interesting to see and is wholly dependent on whether this pandemic will get worse through suspected second waves in areas like China and Germany.