•  Air France would receive about 4 billion euros in French-guaranteed loans KLM unit would get 2 billion euros from The Hague
  • Air France-KLM was created in 2004 through the merger of the two national carriers
  • Both airlines have cut flights by 90%

Air France-KLM is reportedly in talks with French and Dutch government officials over a possible state-funded bailout through the issuance of up to 6 billion euros ($6.5 billion) in guaranteed loans.

Should the funding become available, the wholly owned subsidiary Air France would receive about 4 billion euros ($4.3 billion) in French-guaranteed loans while the wholly owned KLM unit would get 2 billion euros ($2.2 billion) backed by The Hague.

Air France-KLM was created in 2004 through the merger of the two national carriers of France and Holland.

Both airlines have cut flights by 90% and are seeking to reduce costs through temporary layoffs. KLM, which employs 35,000 staff, will also eliminate 2,000 jobs permanently. (Air France has 45,000 employees).

Citi analyst Mark Manduca estimated that Air France-KLM is burning through nearly 700 million euros ($756 million) in cash per month.

The governments of France and Holland own 14.3% and 14% of the company’s shares, respectively.

“We are naturally in constant discussions with both governments,” an Air France-KLM spokeswoman said.

The French and Dutch governments now appear to be cooperating in helping the airline, although Paris was angered by Holland taking a 14% stake in the airline last February.

“We’ve been in discussions for a long period of time with KLM and Air France, and very specifically with the French state,” said Dutch Finance Minister Wopke Hoekstra. “It’s extremely important to help this vital company through these difficult times.”

The French government had already planned to inject cash into the airline rather than increase its shareholding, which might have upset the Dutch. However, this measure – as politically questionable as it might seem – has not been ruled out either.

While some observers have called for a break-up of the unusually arranged corporate structure, KLM CEO Pieter Elbers said earlier this week that they are not seeking any such separation.

“We are not working on disentanglement scenarios,” Elbers said. “We’re working on financing.”

However, Jean-Baptiste Djebbari, the French Minister for Transport, said as recently as Sunday that a state takeover of Air France was “one possibility among others that we are not ruling out.”

Reuters reported that Air France is also in talks with lenders including Credit Agricole and Natixis for funding, while KLM is probably seeking to draw funds from existing relationships with Dutch banks.

France is apparently rejecting demands from the banks for higher levels of state loan guarantees. Under EU guidelines, state-guaranteed loans cannot exceed 25% of 2019 revenue – which amounted to 4.15 billion euros ($4.48 billion) for Air France and 2.77 billion ($3 billion) for KLM.

“Both governments are working to pump as much in [the airline] as they can, as opposed to pumping as little in as they can,” one source told Reuters.

The bickering between France and Holland over the structure and management of the dual airline is likely to intensify, especially if the carrier needs new capital once the pandemic is over.

The KLM unit has consistently outperformed Air France in terms of profitability while avoiding the labor unrest plaguing the latter.