KLM Royal Dutch Airlines (KL, Amsterdam Schiphol) confirmed on June 26 that the Government of the Netherlands would give the Dutch wing of Air France-KLM support worth EUR3.4 billion euros (USD3.8 billion), ending months of bickering with France over the role of each country in an inescapable coronavirus crisis rescue deal.
The financing “ensures that KLM can continue its activities and that the company’s position is strengthened towards the future,” the carrier said in a statement.
As previously reported, Paris announced a EUR7 billion (USD7.85 billion) bailout package for Air France (AF, Paris CDG) on April 25, but KLM reached its own version “only after careful discussions with both the Dutch state and banks,” the airline stressed.
The financing package consists of a 90% state-guaranteed revolving credit facility of EUR2.4 billion (USD2.7 billion) with a maturity of five years, granted by 11 banks, three of which are Dutch; and a direct loan provided by the Dutch state of EUR1 billion (USD1.1 billion) with a maturity of 5.5 years.
Painful reforms are part of the package, including salary and spending cuts, a bonus and dividend freeze, and ambitious environmental targets such as fewer night flights and halving carbon dioxide emissions by 2030, which the Dutch parliament imposed as conditions for the aid.
The Dutch government will also appoint an observer to the KLM board to check how the taxpayer money is spent - a move Paris had initially blocked. The French and Dutch governments each hold a 14% stake in Air France-KLM, but the two sides have clashed regularly on strategy issues over the years.
The financing and its conditions are still subject to parliamentary approval in the Netherlands as well as by the European Commission. Once these are obtained, KLM said it would consult with unions to “work out the conditions that the government imposes on the employment conditions of KLM employees.”
KLM will present a draft restructuring plan in July, but it is known that pilots will have to take a pay cut of up to 20% and the company as a whole must cut costs by 15%.
“The goal is to keep as many jobs as possible, but we can’t close our eyes to the reality that the airline and industry is facing,” CEO Pieter Elbers told reporters according to Reuters.
The aid will ensure KLM can continue to operate at least into 2021, Finance Minister Wopke Hoekstra said at a press conference, adding that the government may provide further assistance if needed.
“This package is needed to make sure that KLM and Air France can continue to fulfil the important role that they have in our economy,” Hoekstra said.
Ryanair Holdings chief executive Michael O’Leary has since called on the European Union Commission to block the proposed bailout calling it “illegal state aid”.
