Air France-KLM has launched a capital increase to bolster its finances and repay more of the state aid it received during the pandemic, saying that now is the right time to seek shareholder support amid an invigorated air travel market, it said in a statement and prospectus released on May 24.
The rights issue for existing shareholders targets a gross amount of EUR2,255,645,459 euros (USD2.41 billion), with 1,927,902,102 new shares to be subscribed in cash, “by payment in cash or by offsetting receivables”, at a unit price of EUR1.17 (USD1.25) on the basis of three new shares for one existing share. It will run from May 27 to June 9, inclusive.
The issue is the Air France and KLM Royal Dutch Airlines parent's second in just over a year and was widely expected. It takes it closer to repaying Covid-era government support and meeting European Union conditions for taking part in future mergers and acquisitions - such as the imminent privatisation of ITA Airways (AZ, Rome Fiumicino).
“The company intends to free itself from the conditions set by the European Commission’s temporary framework and will therefore allocate circa EUR1.7 billion [USD1.8 billion] to the repayment of the 'Covid-19 recapitalisation aid' granted in the form of undated subordinated notes issued in April 2021,” the statement said.
Air France-KLM CEO Ben Smith said in the statement: “The operation we are launching today is the result of the work we have been doing for several months to consolidate our balance sheet, strengthen our financial autonomy and regain strategic and operational flexibility. As the recovery continues and our economic performance recovers, [...] we want to be in a position to seize any opportunity in a changing aviation sector and accelerate our environmental commitments.”
While thanking the group's main shareholders “for their renewed support in this operation”, he welcomed the French logistics giant CMA CGM “to our capital as a new reference shareholder and industrial partner in our cargo activities.” As previously reported, CMA has pledged to acquire a stake of up to 9% in Air France-KLM as part of a long-term strategic partnership.
As summer approaches, airlines in Europe are seeing a surge in ticket sales, but there are fears of an inflation-driven recession on the horizon.
Separately, Air France-KLM has also entered talks with New York-based private equity firm Apollo Global Management for a EUR500 million (USD530 million) capital injection, also to help repay French state aid.
Air France-KLM’s biggest shareholders, the French and Dutch states, will participate in the upcoming capital raise, keeping the sizes of their stakes unchanged. France holds 28.6% of the company’s share capital and 28.1% of the voting rights, while the Netherlands holds 9.3% of the share capital and 13.8% of the voting rights. Sigrid Kaag, Dutch deputy prime minister and minister of finance, told MPs on May 24 that the Netherlands would invest EUR220 million (USD235 million) in the issue.
But China Eastern Airlines (MU, Shanghai Hongqiao), which holds 9.6% of the capital, and Delta Air Lines (DL, Atlanta Hartsfield Jackson) (5.8%) are likely to see their stakes cut to 4.7% and 2.9%, respectively, as they participate on a “cash neutral” basis by selling part of their rights to CMA and using the proceeds to take part in the issue.
