Exclusive: Air France-KLM in talks on a multi-billion euro state-supported loan package

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PARIS / AMSTERDAM (Reuters) – Air France-KLM is in talks with banks to receive up to 6 billion euros ($ 6.5 billion) in loans guaranteed by the French and Dutch governments, while the group of airlines are preparing for a long-term shutdown of coronaviruses, Reuters sources said.

FILE PHOTO: Air France group logo KLM is pictured on the first Airbus A350 of the Air France airliner during a ceremony at the headquarters of the Airbus aircraft manufacturer in Colomiers near Toulouse, France, on 27 September 2019. REUTERS / Regis Duvignau

The two states, which each hold 14% of Air France-KLM, have suspended a long-standing meeting quarrel to deal with the cash crisis, three people familiar with the talks said. But the crisis may ultimately deepen their conflict, they said.

Details and amounts are not finalized and may change, people said. In the most likely scenario, Air France could get around 4 billion euros in loans guaranteed by France while KLM receives almost 2 billion backed by The Hague, two sources said.

The group has mandated BNP and Société Générale to advise on refinancing, two sources said.

The two banks declined to comment.

“We are naturally in constant talks with the two governments,” said an Air France-KLM spokesperson, refusing to comment.

Governments around the world are struggling to support airlines at risk of bankruptcy as the pandemic accelerates, gutting travel demand and stopping traffic.

The French and Dutch governments also declined to comment on the Air France-KLM talks in detail. Both countries have expressed willingness to offer financial assistance.

“We have been talking for a long time with KLM and Air France, and very precisely with the French government,” Dutch Finance Minister Wopke Hoekstra told Reuters on Wednesday. “It is extremely important to help this vital endeavor get through these difficult times. “

Air France-KLM’s emergency loans would be a multiple of its depressed market capitalization of 2.12 billion euros – reflecting the magnitude of the threat to major airlines and the measures taken to save them.

The US Senate approved a $ 58 billion bailout for the US aviation industry on March 25, one day before Singapore Airlines received a $ 13 billion lifeline. Lufthansa is about to receive billions of aid.

GUARANTEES

Loans for Air France and KLM would be supported by their respective governments, two people said, with the Paris package calling for € 300 billion in business assistance promised last month, with a state guarantee to 70%.

Air France is in talks with potential lenders, including Credit Agricole and Natixis, while KLM should build on existing relationships with Dutch banks, one of the sources said, adding that deals were expected this month .

France is resisting banks’ demands for a higher level of state loan guarantees, the same people said. In comparison, German rival Lufthansa is expected to get emergency funding with an 80% state guarantee.

Crédit Agricole declined to comment, while Natixis did not respond to requests for comment.

According to EU guidelines softened for the crisis, state guaranteed loans must not exceed a quarter of 2019 turnover – 4.15 billion euros for Air France and 2.77 billion for KLM .

“The two governments are trying to pump as much as possible, as opposed to pumping as little as possible,” said a source.

The French and Dutch governments remain at odds over the management and strategy of Air France-KLM, created by the 2004 merger between the two national carriers.

Frustrations exploded in March of last year with the surprise acquisition by the Dutch state of a stake in the group, intended to equal France’s stake and counter its influence.

A deadlock ensued in which the Dutch government got none of the concessions it was looking for, while the value of its investment fell by 60%. The pressure from the CEO of the Ben Smith group for greater integration has also largely stopped.

NATIONALIZATION?

Faced with the global crisis, talks between governments have been “dynamic and transparent,” said one of those involved. “The goal for all of us is to save our savings. “

But the loan frenzy would leave a debt-laden Air-KLM in need of new capital when the coronavirus disruption eased, two sources said, rekindling tensions that could lead to separation.

The nationalization of Air France “is one possibility among others that we do not exclude,” said French Transport Minister Jean-Baptiste Djebbari on Sunday. On the Dutch side, “several options are still being explored, including a state-guaranteed loan” or an equity investment, a source said.

A likely restructuring could stir up resentment from KLM, which has consistently outperformed Air France’s profitability while avoiding the strikes that plagued its stable partner.

The two airlines have reduced their flights by more than 90% and are cutting costs with government-funded leave. KLM, which employs 35,000 people compared to 45,000 for Air France, is also cutting 2,000 jobs permanently.

Slideshow (3 Pictures)

Managers will have to “keep a close eye” on each carrier’s contribution to the recovery effort, said a Dutch source close to the board of directors. ” We will see. “

Uncertainty about the length and depth of the industry collapse further complicates the rescue, said one of the people familiar with the talks.

The group burns nearly 700 million euros in cash per month, according to estimates by the judgment of analyst Citi Mark Manduca, who expects Ryanair and Wizz Air to be the only major European carriers to avoid refinancing.

Report by Laurence Frost and Anthony Deutsch; Additional reports by Arno Schuetze in Frankfurt, Toby Sterling in Amsterdam and Gwenaelle Barzic, Leigh Thomas and Maya Nikolaeva in Paris; Editing by Pravin Char

Our standards:Principles of the Thomson Reuters Trust.

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