Air France-KLM Gets €10 Billion Bailout as Coronavirus Hits Travel - Press "Enter" to skip to content

Air France-KLM Gets €10 Billion Bailout as Coronavirus Hits Travel

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PARIS — France and the Netherlands will provide an unprecedented taxpayer-funded bailout of 10 billion euros, about $10.8 billion, to salvage Air France-KLM as the fallout of the coronavirus on the travel industry exacts a devastating toll on global air carriers.

Air France-KLM, one of Europe’s biggest airlines, will receive a €4 billion bank loan backed by the French state and a €3 billion direct government loan, Bruno Le Maire, France’s finance minister, said late Friday. The Dutch government said it would provide an additional €2 billion to €4 billion in public aid.

The aid infusion falls short of nationalizing the company, in which the French and Dutch states each own a 14 percent share. The European Commission — the executive branch of the European Union, which has thrown out restrictions on state support amid a deep economic downturn — swiftly approved the bailout.

It is the third multibillion-euro lifeline extended this past week by the French government to companies battered by the coronavirus.

The government is working on a €5 billion state-backed loan package for the flagship French automaker Renault, Mr. Le Maire said on Friday. Sales at Renault — which is part of the world’s biggest auto alliance, with Nissan and Mitsubishi Motors — have been hammered after quarantines closed dealerships and factories across Europe. The company had already been flagging in recent months as the arrest and subsequent escape of its former chairman, Carlos Ghosn, from Japan in January took a toll on the group.

The state also backed a €500 million loan this past week for the French electronics retail giant FNAC-Darty, which employs tens of thousands in France, to help it secure cash flow and prepare for recovery after the pandemic.

Since the crisis hit, the French government has backed more than €20 billion in loans for 150,000 companies, part of a huge fiscal package to support the economy and limit mass joblessness until businesses can safely start operating again. The French economy is expected to contract by at least 8 percent this year, the sharpest drop since the end of World War II.

Few industries have been dealt as sharp a blow as the airlines, as worldwide travel bans bring fleets to a standstill. The International Air Transport Association cautioned this week that European airlines would see demand drop 55 percent in 2020 compared with 2019, with potential totaling $89 billion.

Flights around Europe have slumped 90 percent, and most carriers don’t expect service to resume before June. The rollout of air traffic may depend on the introduction of government-mandated social distancing measures inside aircraft, the air transport association said.

The Trump administration reached a deal with major U.S. airlines this month over the terms of a $25 billion bailout to help the companies pay flight attendants, pilots and other employees.

Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Frontier Airlines, Hawaiian Airlines, JetBlue Airways, United Airlines, SkyWest Airlines and Southwest Airlines will participate in the bailout, which is part of an economic stabilization package that Congress passed last month.

European airlines were affected earlier than in the United States, after President Trump on March 12 shut America’s borders to most European travelers. While the travel ban helped slow the spread of the outbreak in the United States, European carriers have struggled to cope.

The German airline Lufthansa said on Thursday that it would require government bailouts after plummeting sales led to a loss of more than a billion euros in the first quarter, and investors are no longer willing to lend the company money. Passenger traffic has fallen to almost nothing, and the second quarter will be even worse, Lufthansa said in a statement.

Norwegian Air is seeking creditor support for a rescue plan that would convert up to $4.3 billion of debt into shares and raise new equity after it announced temporary layoffs last month of 7,300 employees, about 90 percent of its work force, and asked Norway’s government for help.

Air France, in which the government holds a 14 percent stake, put employees on part-time paid furlough for six months, complying with a government demand not to lay off workers. The carrier has lost about €25 million a day since then, pushing it into a critical financial state.

With almost all of the company’s planes grounded, the financial lifeline is needed “to save the 350,000 direct and indirect jobs that go with them,” Mr. Maire said.

Air France-KLM’s chief executive, Ben Smith, told pilots this month during a videoconference call that it would probably take two years to regain the level of traffic seen in 2019. The carrier, which hopes to gradually restore flights over the summer, warned recently that with absence of ticket sales, it would urgently need cash in the July-September quarter to stay afloat.

In a statement, the finance ministers of France and the Netherlands said they would “take all necessary measures” to help the carrier “overcome this severe pandemic crisis.” The loans to the company and fresh government money are aimed at preserving the carrier’s financial and operational situation, they said.

The support “is not a blank check” Mr. Le Maire said on Friday, adding that the governments had set profitability conditions on the carrier.

“It is the money of the French, therefore it is necessary that the company make an effort to be more profitable,” he said. The company will also be required to become “the most environmentally friendly company on the planet,” he added.


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