Air France-KLM launches a new capital increase to end the crisis

This increase of 2.26 billion euros aims to put an end to the Covid-19 crisis which had devastating effects on the company’s activity.

Hoping to leave behind the nightmare of the health crisis for good, Air France-KLM announced on Tuesday a new recapitalization of 2.26 billion euros, which will see the shipowner CMA CGM become its third shareholder after the French and Dutch States.

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Torpedoed like the entire aviation sector by Covid-19, which has caused it to lose some 11 billion euros since the start of 2020, and in a context of vigorous recovery in traffic, the Franco-Dutch group wants to allocate the majority of the amounts raised reimbursement of exceptional aid granted by the French State. The latter and the Dutch State intend to subscribe to this capital increase in order to maintain the same levels of participation, ie 28.6% and 9.3% respectively. For the French State, this will represent an amount of some 645 million euros; on the Dutch side, it will be around 220 million, according to a letter from the government to the country’s parliament, which will have to give the green light to this extension.

China Eastern and Delta Air Lines see their stake shrink

On the other hand, the two other main current shareholders, the Chinese companies China Eastern and the American Delta Air Lines, will see their stake reduced in favor of a new entrant, CMA CGM. The French shipowner and logistics company will invest up to 400 million euros and will become the group’s third largest shareholder with 9% if the operation starting on Wednesday and ending on June 9 goes as planned. At the same time, China Eastern will fall from 9.6% to 4.7%, and Delta from 5.8% to 2.9%. The operation announced on Tuesday constitutes the second stage of the measures undertaken to clean up the group’s finances, after a first recapitalization in April 2021. In addition to a doubling of its participation, the French government had then agreed to convert into perpetual bonds an aid of three billion euros granted from the spring of 2020.

This aid had received the green light from the European Commission, as part of the exceptional measures taken in the face of the health crisis. But in the name of fair competition, the institution had forced Air France-KLM to make concessions, including the abandonment of airport slots at Orly and the ban on making strategic acquisitions beyond 10% of the capital of the companies concerned until at least 75% of the State aid has been reimbursed.

“Solid financial trajectory”

According to the terms of its press release on Tuesday, Air France-KLM wishes toto liberate oneself» in particular of this last constraint, while many opportunities for consolidation of the aviation sector are emerging in a period of exit from the crisis. The group “will affect approximately 1.7 billion euros“of the amount it hopes to raise in the reimbursement of the bonds subscribed by the State, while”the balance will reduce net debtof the company, which was 7.7 billion euros at the end of March. Air France-KLM, which is organizing the general meeting of its shareholders on Tuesday afternoon, had already announced last Friday that it wanted to allocate to the reimbursement of French aid the 500 million euros that the American fund Apollo will invest in a subsidiary that owns a fleet of Air France spare engines.

According to Air France-KLM, the operation announced on Tuesday, “as well as all the measures to strengthen the balance sheet planned“, in addition to the expected return to operating profitability in the coming quarters, “will put the company on a solid financial trajectory“. “As the recovery takes hold and our economic performance recovers“, Air France-KLM wants to be able to “seize any opportunity in a changing aviation sector“, commented the general manager of the group, Benjamin Smith, quoted in the press release. CMA CGM’s entry into the capital, revealed last week, is accompanied by a partnership in the air freight sector, which has become extremely profitable with the crisis.

The title fell by 5% this Tuesday morning

After dividing its net loss by three over one year in the first quarter, Air France-KLM expressed its optimism for the summer season, thanks to the return of travelers following the lifting of movement restrictions: activity levels for the crucial summer period should approach those of 2019 and even exceed them for the subsidiary “low-cost» Transavia. According to its leaders, the group has emerged intrinsically more profitable from the crisis after having carried out an all-out cost reduction plan for two years, including the elimination of 8,500 positions at Air France (17% of the workforce), of which 700 will take place this year, and 5,500 at KLM.

The title of the company fell by more than 5% on the Paris Stock Exchange on Tuesday, after the announcement of the launch of the capital increase. The title fell 5.41% to 4.11 euros around 9:10 a.m., after touching 4.08 euros during the very first exchanges, in a market down 1.31%. Since January 1, the stock has been up nearly 7%.

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