As anticipated, the European Commission has approved a second bailout of Air France-KLM, involving EUR4 billion euros (USD4.75 billion) in refinancing that could see the French state increase its stake in the group from 14.3% to almost 30%.

Under the plan, which so far benefits only the Air France (AF, Paris CDG) wing of the group, the French government will convert a EUR3 billion (USD3.56 billion) loan provided last year into a perpetual hybrid bond and take part in a planned EUR1 billion (USD1.19 billion) share issue, thereby raising its shareholding.

The measures have “the objective of strengthening the group’s balance sheet, preparing the recovery, and repositioning it on a sustainable financial trajectory,” the company said in a statement.

French Finance Minister Bruno Le Maire later confirmed on France Inter public radio that the move “will make the state Air France’s biggest shareholder,” a development he described as a “sign of commitment” to the airline and its staff.

The aid “will come with strings attached, in particular, to ensure the French state is sufficiently remunerated, and further measures to limit distortions of competition,” cautioned EU antitrust chief Margrethe Vestager.

In particular, “Air France has committed to make available slots at congested Paris Orly airport, where [it holds] significant market power. This gives competing carriers the chance to expand their activities at this airport, ensuring fair prices and increased choice for European consumers,” she added.

Air France-KLM elaborated in its own statement that it had agreed to commitments including “Air France’s release of up to 18 take-off and landing rights at Paris-Orly to a competing carrier in order to create or develop an existing base at that airport, provided that the competing carrier [...] bases its aircraft and crews there in compliance with national and EU labour laws.”

In a separate statement, KLM Royal Dutch Airlines (KL, Amsterdam Schiphol) said that the Dutch state, which holds a 14% stake in the group, was continuing talks with Brussels on its own refinancing plan. It is more reluctant to part with slots at Amsterdam Schiphol.

“For the Netherlands, the connection with the rest of the world via Schiphol is of strategic importance. [...] In time, KLM will also need capital. For that purpose, the Dutch state is in talks with Brussels, Air France-KLM, KLM, and other stakeholders. As long as these discussions are ongoing, KLM will not comment on the progress of these talks.”

Air France-KLM said that while shareholder China Eastern Airlines (MU, Shanghai Hongqiao) had agreed to participate in the capital increase “as part of further reinforcement of strategic cooperation with the group,” it would “keep its stake strictly below 10%.” However, given its adherence to conditions under its own US government aid, Delta Air Lines (DL, Atlanta Hartsfield Jackson), which holds an 8.8% stake in Air France-KLM, will not subscribe.

The group, which posted a net loss of EUR7.1 billion (USD8.4 billion) for 2020, forewarned that “additional measures to further strengthen the balance sheet are currently under consideration with several steps to be taken before the 2022 Annual General Meeting, as the group’s net equity will remain negative after this first step.”

Nevertheless, Air France-KLM CEO Benjamin Smith said that “these first recapitalisation measures [...] will provide Air France-KLM with greater stability to move forward when recovery starts, as large-scale vaccination progresses around the world and borders reopen. [...] We will continue to drive new efficiencies as we seek to lower unit costs and emerge stronger when the industry rebounds.”