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World Pandemic Injects Politics Into the Air France-KLM Survival Plan

07:50  29 october  2020
07:50  29 october  2020 Source:   bloomberg.com

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The survival of the Air France - KLM group is not guaranteed if the economic crisis caused by the coronavirus pandemic continues, Dutch Finance Dutch press agency ANP said KLM has to develop a restructuring plan by October 1. Air France - KLM suffered a loss of 2.6 billion euros in the second

Air France - KLM became the latest carrier to get a state-backed bailout, with the French and Dutch Airline has grounded most of its planes due to virus pandemic . Air France passenger aircraft sit on The company has already slashed costs, shelved investment plans and sent part of its fleet into early

(Bloomberg) -- Air France-KLM’s future as a combined company will be put to the test as France and the Netherlands prepare for critical talks on bolstering the weakened carrier’s finances, according to the French transport minister.

The discussions will raise fundamental questions about the way the airline is structured and backed by the two countries, Jean-Baptiste Djebbari said in an interview. The governments have pledged 10.4 billion euros ($12.2 billion) earlier this year to prop up the carrier’s pandemic-shattered finances, but will need to go further to ensure its survival.

“Do we really want an integrated company or not?” Djebbari, 38, said at his office in Paris. “Within a contract or integrated group, benefits have to be shared and equitable.”

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The survival of Air France - KLM is ‘not guaranteed,’ at least that’s what the Finance Minister of the Netherlands is saying. Air France - KLM has already received billions. The French and Dutch governments, which each own 14% of the group, have already injected billions of euros into their

Continuing strikes at Air France - KLM and the resignation of its CEO Jean-Marc Janaillac have plunged the company into crisis, prompting the French French Finance Minister Bruno Le Maire told BFM TV that the labor dispute “threatens the survival of Air France .” He added the government would not

a man wearing a suit and tie: France's Transport Minister Jean-Baptiste Djebbari Interview © Bloomberg France's Transport Minister Jean-Baptiste Djebbari Interview

Jean-Baptiste Djebbari said the talks on aid for Air France-KLM raise questions about the company’s future.

Photographer: Benjamin Girette/Bloomberg

The global health crisis has put further stress on already shaky relations between Air France-KLM’s two biggest shareholders. The slump in air travel and ensuing losses at the carrier have France and the Netherlands searching for a way to collaborate on a possible equity injection, just 18 months after a bitter and unprecedented spat.

In February 2019, the Dutch government revealed it had secretly amassed a stake to match France’s 14% holding, blindsiding Paris and laying bare its intention to exert more influence on Air France-KLM, a rival to British Airways owner IAG SA and Deutsche Lufthansa AG.

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Air France - KLM plans thousands of job cuts at its French arm as the air industry reels from the pandemic . As part of the West Yorkshire airport's plans to start moving people again, a Ryanair flight took off yesterday. More airlines are to join Ryanair in restarting flights from Leeds Bradford

Air France - KLM and Airbus SE are poised to tap French government-backed loans as the coronavirus outbreak drains corporate cash reserves, according to people familiar with the matter. With the aviation industry among sectors most under pressure from the pandemic , the airline and planemaker

The latest dilemma follows a resurgence of the pandemic that’s plunged airlines into renewed turmoil after a short-lived travel revival during the summer months. Air France-KLM Chief Executive Officer Ben Smith has said talks are ongoing with shareholders for a recapitalization because the state rescue package is only enough for less than a year. The company is set to publish results Friday, but has already warned of “significantly negative” earnings in the second half after a record quarterly loss in July.

“What is now on the agenda is how the group can recover,” said Djebbari, a licensed business-jet pilot and former executive at Luxembourg-based operator Jetfly. “What will be the role of the states, and within its new strategy, what will be the capital needs, what kind of nationalization -- if that’s what’s needed -- and under what conditions.”

Strategic Importance

The scope of the questions at issue for Air France-KLM underscores the sweeping nature of the crisis for governments and carriers alike. Lufthansa, which owns former national carriers in Austria, Switzerland and Belgium, avoided insolvency with a 9 billion-euro multi government bailout.

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Air France - KLM plans to provide face masks when flights are busy in the coming weeks. Separately, Smith told Les Echos newspaper Saturday that the pandemic is forcing the company to reassess its fleet in the short and medium term by temporarily grounding some planes and phasing out others in

Air - France KLM estimated the coronavirus outbreak would cost it between €150m and €200m between February and April. On Thursday the airline group announced it had cancelled all flights to mainland China until the end of March. It assumes that flights will resume at a steady pace beyond then.

The French state’s support for the carrier won’t waver even if the recovery in air travel only comes gradually, Djebbari said, citing its “extraordinary” strategic and geopolitical importance. French Finance Minister Bruno Le Maire has stood by the struggling carrier in saying the state would guarantee Air France’s survival, while his Dutch counterpart has been more circumspect.

Asked in September whether the airline will get through the crisis, Dutch Finance Minister Wopke Hoekstra said, “That is not a given.” The Netherlands has taken longer in granting loans and guarantees to KLM than the French did for Air France, leaving open the question of how much money both states are willing to plow into the airline and whether the Dutch will be on board.

Resentment, Labor Strife

The challenges of reaching a political deal are magnified by years of bad blood between the two units, which came together in a 2004 tie-up. KLM has long resented French control, Air France’s weaker margins and history of labor conflict.

In the interview, Djebbari said KLM has benefited more than the French arm over the past decade from being in the group because of support it received from the Netherlands at its Schiphol hub in Amsterdam.

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The COVID-19 pandemic has had a significant impact on the aviation industry due to travel restrictions and a slump in demand among travellers.

Air France - KLM reported a net loss of €1.8 billion in the first quarter. Ben Smith, the CEO of the Franco-Dutch airline group, will begin discussions with French unions on staff cuts. The financial crisis rekindled tensions between employees of the two airlines.

“Air France-KLM isn’t quite a group, few of its operations are shared and the Dutch have lots of power,” he said. “The question is what should we do and what we want to do together.”

As transport minister, he has taken particular interest in the airline industry because of his background. After aeronautical engineering studies in Toulouse, home of Airbus SE, Djebbari did stints at France’s civil aviation regulator and as an expert for the courts.

a large passenger jet sitting on top of a tarmac at an airport: Dutch Carrier KLM Maintains Its Grounded Airline Fleet Amid Coronavirus © Bloomberg Dutch Carrier KLM Maintains Its Grounded Airline Fleet Amid Coronavirus

KLM passenger aircraft at Schiphol Airport in Amsterdam, Netherlands. Djebbari said KLM has benefited more than the French arm.

Photographer: Natascha Libbert/Bloomberg

Four years ago, just as he was pushing ahead with a plan to create a regional airline, he met then-economy minister Emmanuel Macron and threw his hat in the electoral ring, winning a seat in parliament in 2017.

There he led an effort to overhaul the loss-making and heavily indebted state railway SNCF -- a bastion of labor strife that has proven to be a deep trap for a string of political leaders.

The pandemic could have a lasting effect on public transport systems including trains and subways because people may end up working more from home, Djebbari said.

Similarly, with cutbacks in Air France’s loss-making domestic services and low-cost rivals leaving regional airports, some areas of France could be left without connections that are vital to their economies.

Domestic travel is “a real political subject,” he said.

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Dutch Reject KLM Cost-Cutting Plan Linked to Government Bailout .
The Netherlands has rejected a cost-cutting plan put forth by Air France-KLM’s Dutch arm and withheld a portion of a 3.4 billion-euro ($4 billion) government bailout until it approves the restructuring plan. © Bloomberg A cone marks a safety zone in front of the jet engine intake of a grounded Boeing Co. aircraft as members of Line Maintenance Department perform essential tests on all systems on KLM passenger aircraft, operated by Air France-KLM Group, at Schiphol Airport, operated by the Royal Schiphol Group, in Amsterdam, Netherlands, on Wednesday, May 13, 2020.

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