State Flies to the Aid of Air France-KLM

Sign up for insightful business news.

Yesterday the French government said bon voyage to €4 billion.

After a lengthy negotiation with the European Union, the French state announced a hefty bailout package for its beleaguered flag-carrying airline, Air France-KLM.

Aidez-moi SVP

You know the story. Airlines have been pummelled by the pandemic with holidays abroad and corporate travel — Air France-KLM’s bread and butter — frozen in time. And while America is rolling out vaccines roughly 5x faster than the rest of the world, Europe is struggling with jab shortages and a crushing third wave of coronavirus.

In France, President Emmanuel Macron ordered the country’s third pandemic lockdown last week, including a nightly 7pm to 6am curfew. And so Air France-KLM’s woes persist while it burns through €10 million per day.

To keep Air France-KLM afloat, the French state — already a 14.3% shareholder — will convert €3 billion in loans it gave last year into equity and join a €1 billion capital raise on top of that. It will become the airline’s single-largest shareholder in the process.

Un String Attached: The deal took months of negotiations to get approval from the EU, which structured the deal to ensure shareholders would not benefit unfairly from the cash injection:

  • France, whose ownership could rise to as much as 29.9%, promised to devise an exit strategy from the investment in 12 months, unless its equity falls below 25% by then.
  • Air France-KLM is banned from paying out dividends and making share buybacks. It will also have to cap pay and bonuses.
  • The airline had to surrender 18 of its more than 300 landing and take-off slots at Paris-Orly airport, which will now be hived off to the competition.

The Netherlands Not Going Dutch: The Dutch government — a 14% stakeholder in Air France-KLM — is staying out of the deal. As such, the funds will only go to supporting the airline’s French operations.

the takeaway

Of course, France is not unique in bailing out a prized airline. The German government took a 20% stake in Deutsche Lufthansa AG and Italy fully nationalized bankrupt Alitalia SpA.

Investing in the Gateway Cities to the American Dream

Demand destruction is a fallacy. Demand hasn’t evaporated, it has simply transformed.
Read More
Deep Dives more

HOA Fees Are Adding to the Housing Affordability Problem

Meta Files Lawsuit Arguing FTC’s In-House Courts are Unconstitutional

Recent News

Google May Use Drones to Keep Data Centers Healthy

Ford Patent Seeks to Keep EV Batteries Running

Amazon is Narrowing the Gap in the AI Race

Cigna, Humana Eyeing a Merger