The European Commission on Tuesday approved plans by France to grant up to 4 billion euros to reinforce Air France’s equity through its Air France – KLM Holding company, to help the airline face financial difficulties resulting from the coronavirus (Covid-19) pandemic.
However, the state aid comes “with strings attached”, including the French national flag carrier’s release of up to 18 take-off and landing rights (slots) at Paris-Orly airport to a competing carrier, as noted by EU Competition Commissioner Margrethe Vestager in a statement.
The state aid package, which is part of the first step of the recapitalisation plan of the group, comprises the conversion of a 3 billion euros state loan – already granted by France and approved by the Commission – into a hybrid capital instrument; and a new capital injection (for an amount up to 1 billion euros) by the French government through the subscription of new shares in a share capital increase opened to existing shareholders and the market.
Under the plan, the French government commits to participate in the capital increase while keeping its stake in the airline strictly below 30 percent of the share capital and voting rights.
EU gives green light but under conditions
“The public support will come with strings attached, in particular to ensure the French state is sufficiently remunerated, and further measures to limit distortions of competition. In particular, Air France has committed to make available slots at the congested Paris Orly airport, where Air France hold significant market power. This gives competing carriers the chance to expand their activities at this airport, ensuring fair prices and increased choice for European consumers,” Commissioner Vestager said.
Other conditions include restrictions on acquisitions, share buy-backs dividend distributions and a strict limitation of the remuneration of the airline’s executive management, including a ban on bonus payments.
Also, Air France and its Holding company will have to publish information on the use of the aid received, including on how the use of the aid received supports the companies’ activities in line with EU and national obligations linked to the green and digital transformation.
According to the European Commission, KLM, the other strategic subsidiary of the Air France-KLM group, will not benefit from the aid.
In a statement, Air France-KLM said the Dutch State is continuing discussions with the Commission regarding potential capital-strengthening measures for KLM.
In 2019, the Air France-KLM airline group reported an annual operating profit of approximately 750 million euros. However, as a result of the travel restrictions introduced by France and by many destination countries to limit the spread of the coronavirus, Air France and its Holding company have suffered a significant reduction of their activities, leading to major operating losses.
On Tuesday, Air France-KLM said in a statement that it expects to make an operating loss of 1.3 billion euros in the first quarter of 2021.
“Over the coming months, and in particular at the beginning of the summer, the Group still expects a significant recovery in demand, assuming the positive effects of the accelerated vaccination campaigns in several countries could trigger less stringent restrictions on passenger travel across those countries,” Air France-KLM said.
The Air France-KLM Group was created in 2004 when a merger took place between Air France and KLM.