Air France-KLM concerned about the mandate of the government’s “good Airbus customer” regarding state aid against the coronavirus

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Air France-KLM may not like government intervention demanding that Air France be “a good Airbus customer”. But the group may be in a position to fulfill the mandate.

“There are a number of commitments that have been made by Air France,” Finance Minister Bruno Le Maire told French media after the airline received a $ 7 billion loan from the government.

“Air France must continue to be a good customer of Airbus, which is also currently in difficulty,” he said.

But Air France-KLM CEO Benjamin Smith wants a selection of state-of-the-art aircraft.

“We operate like a regular publicly traded company,” he said after investors learned about the mayor’s comments. “We make the right business decisions.” The French and Dutch governments each own around 14% of the group.

The Mayor noted that Air France had large orders for Airbus aircraft headquartered in Toulouse.

“If we support Air France, it is also – and I do not hide it – to support Airbus,” said Le Maire, adding that the government could also “massively” support Airbus directly if necessary.

Smith sees the Air France-KLM group balancing its fleet.

“We have many planes on order from the two manufacturers,” he told investors.

But there is a nationality gap.

“All of the orders, options and purchase rights in effect at Air France are and were with Airbus,” said Smith. Air France has current orders for 60 Airbus A220 and 34 A350s and one last Boeing

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787-9.

Air France’s widebody fleet was geared towards Boeing with 77 aircraft versus 30 Airbus widebody during its last full fleet update last November. But Air France’s short-haul fleet includes 114 100% Airbus aircraft, excluding regional jets.

“All of KLM’s orders were placed with Boeing,” said Smith.

Air France can already meet Le Maire’s mandate, but the future implications are not clear.

“That’s what’s in the books right now. In terms of additional orders, it’s certainly not something we’re talking about today, “said Smith.

Air France will then have to decide to replace its A330-200s and some 777s. Air France will probably receive better deals if it has large aircraft Airbus and Boeing, said Smith last November.

“A lot of people ask us, does it make sense to operate both [A350 and 787], especially if one of these fleets, 787, has only 10 planes? Said Smith.

Last December, Air France ordered 10 additional A350-900s, which will replace its A380s. But it’s worth keeping the 787.

“We assume that they remain in the Air France fleet so that we have good leverage when we negotiate with Airbus and Boeing on the replacement of the A330-200 and some of the early 777 models,” said Smith.

Alternatively, Air France-KLM at group level could simplify the 787 outside of Air France. “We may consider moving these aircraft to KLM in the future,” said Smith. KLM already has 18,787.

If KLM doesn’t need Air France’s 10,787 aircraft, Smith noted that three of Air France’s 787’s are leased and could be returned to lessors.

Smith acknowledged to investors that the government assistance program had commercial terms. The requirements for unit cost and productivity are “perfectly aligned with our business plan,” he said.

Air France’s fuel and constant currency unit costs fell 2.9% between January and February before the coronavirus crisis hit global airlines.

But the government’s environmental conditions will force Air France to “accelerate” its previous objectives.

The € 7 billion loan to Air France includes a € 3 billion loan directly from the French government and then a € 4 billion loan from the banks but 90% guaranteed by the government.

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