The Dutch government has approved a EUR3.4 billion euro (USD4 billion) bailout for KLM Royal Dutch Airlines (KL, Amsterdam Schiphol) following an earlier brief suspension of the plan when pilots rejected an extended freeze on their salaries.

The development came as Air France-KLM posted a EUR1.67 billion (USD1.96 billion) quarterly loss and Air France (AF, Paris CDG) CEO Anne Rigail warned that further recapitalisation would be necessary at the French flag carrier.

The Dutch government had been ready to sign KLM’s bailout package, which includes EUR1 billion (USD1.17 billion) in direct loans, if the flag carrier could persuade eight unions to agree to a wage freeze lasting for as long as the state aid lasts, expected to be until 2025.

Unions representing ground and cabin crews agreed to the measure, but the pilots’ union Vereniging Nederlandse Verkeersvliegers (VNV) argued that it had already consented to a freeze until March 2022 and accused the Ministry of Finance of demanding additions to this cutback agreement at the “eleventh hour”.

However, pilots agreed to the wage demands on November 3, Finance Minister Wopke Hoekstra revealed, clearing the way for the airline to receive the support.

“VNV joined seven other unions today in agreeing to contribute to KLM’s cost-reduction efforts by signing a commitment clause. The airline and the eight trade unions have thus satisfied a key requirement, clearing the way for the Minister of Finance to assess whether KLM now meets the Dutch government’s demands,” KLM said in a statement.

“We will live up to the trust that the Dutch government is placing in us,” said KLM CEO Pieter Elbers.

The VNV said in a statement on November 3 that “KLM and the VNV have found each other again in agreements concerning changes to the collective labour agreement and cutbacks that are necessary in this crisis period,” though it added that “the pilots' earlier austerity agreements remain intact.”

The airline underlined the gravity of the crisis last week by saying that “in order to secure the future of the company [...] the loan and government guarantees on bank loans totalling EUR3.4 billion are crucial,” while Elbers had commented that “without this loan, KLM will not make it through these challenging times.”

Hoekstra had said: “The outlook is sombre, which makes it all the more important to have a good restructuring programme in place to work towards KLM’s long-term recovery.”

Air France-KLM posted on October 30 a 67% drop in third-quarter revenue to EUR2.52 billion (USD2.95 billion). The group’s net debt rose to EUR9.31 billion (USD10.9 billion) as of September 30, but it has EUR12.4 billion (USD14.5 billion) in liquidity, mostly due to French and Dutch bailouts agreed earlier this year.

Its EUR1.67 billion loss included operating losses of EUR234 million (USD274 million) at KLM and EUR807 million (USD944 million) at Air France, while restructuring charges swelled its overall net loss.

“The gradual closure of international borders in the second half of August and the resurgence of the pandemic strongly impacted our results,” group chief executive Ben Smith recounted.

Although cargo unit-revenue doubled during the quarter, overall liquidity depletion will accelerate with a further collapse in traffic, group chief financial officer Frédéric Gagey warned.

Air France and KLM plan to cut their combined workforce by 9,000 full-time positions this year, with 4,500 more at Air France by 2022. On October 19, KLM opened a second Voluntary Departure Scheme in which about 1,500 additional jobs are to be lost on top of a previously announced 5,000.

The group is working on raising new capital, an issue that will raise fundamental questions about the way Air France-KLM is structured, French transport minister Jean-Baptiste Djebbari told Bloomberg News last week.

However, in an interview with Bloomberg TV, Gagey rejected any mention of the Franco-Dutch airline splitting up, arguing: “The cooperation, in spite of what you read here and there, is extremely deep. The two teams work together on a daily basis in excellent conditions.”

Air France CEO Anne Rigail told the radio station Europe 1 on the evening of October 30: “Given our weak results, we see that we will have to strengthen our balance sheet. And that will require a recapitalisation.”

“The balance sheet structure” of the company is “so weak that it is necessary to inject capital,” she added, although exactly where this money will come from remains unclear.