Air France-KLM To Receive State Bailouts Totaling $12 Billion, Subject To EU Approval

Franco-Dutch air carrier Air France-KLM will receive up to 11 billion euros ($11.94 billion) in state funds from the governments of France and Holland in order to save the airline from bankruptcy due to the devastating effects of the coronavirus pandemic.

Late on Friday, the Dutch government said it will offer up to 4 billion euros ($4.34 billion) in state funds to KLM, while the French government will provide 7 billion euros ($7.6 billion) for Air France.

KLM said on Saturday that it was "grateful” for the aid from the Dutch government.

“We’ve always said we will do everything it takes to help Air France-KLM through this crisis. Schiphol airport and its main user KLM are vital to the Dutch economy and employment,” said Dutch Finance Chief Wopke Hoekstra.

The French package includes 3 billion euros ($3.25 billion) in direct shareholder loans and 4 billion euros ($4.35 billion) in other loans, 90% of which will be backed by the state. The state-backed loan, with a maturity of 12 months, was granted by six banks.

France’s Minister for Finance Bruno Le Maire described the package as a form of “historic support” for Air France’s national airline, designed to protect its 350,000 jobs.

"This aid mechanism, which remains subject to approval by the European Commission, will enable the Air France-KLM group to provide Air France with the means necessary to meet its obligations by continuing its transformation in order to adapt in a sector that the global crisis will severely disrupt," the airline said.

"This financing will give us the opportunity to rebuild. Faced with the upheaval the world is going through, we are going to have to rethink our model immediately," said Chief Executive Ben Smith. “We are a strong group and we are united in face of this crisis.”

Air France-KLM, which was formed in 2004 through a merger of the national airlines of France and Holland, has an unusual ownership structure. “Air France” and “KLM” presently operate as separate, wholly owned subsidiaries of the parent corporation. The French and Dutch government each control 14.3% of the company’s shares, with various other entities owning smaller portions.

However, the dual bailouts remain subject to approval of regulatory authorities. Among the conditions to be imposed include a ban on paying out dividends and executive bonuses while the airline receives state aid. Workers will also have to accept pay cuts.

Earlier this year, Air France-KLM warned that it would lose between 150 million euros ($162.7 million) and 200 million euros ($217 million) in the February-April period alone due to the pandemic.

Last week, the International Air Transport Association said European airlines stand to lose up to $89 billion in potential revenues this year due to the pandemic and grounding of flights.

But climate change activists worry that the loans do not appear to be linked to demands that the airline cut emissions.

Sarah Fayolle of Greenpeace France said “we want to know exactly how Air France will make its green transition when there is absolutely no constraint, no sanction, and no ambition mentioned.”

Bas Eickhout, an MEP for the Dutch Greens party, said he expects the European Commission to consider its green policies and targets when assessing the bailout.

Green lawmakers on the European Parliament’s transport committee wrote a letter to Ursula von der Leyen, president of the European Commission, and Margrethe Vestager, the EU executive’s president and competition chief, asking that bailouts should come with very strict conditions, including viable emissions-cutting plans, pledges to pay fuel tax and vows to eliminate short-haul flights.