Air France-KLM Plans Capital Increase After EU Approves EUR4 Billion in French State Aid -- Update

--Air France-KLM to raise capital of up to EUR1 billion for French arm, with participation from France's government and China Eastern Airlines

--The plan follows the European Commission's approval of up to EUR4 billion in state aid to recapitalize Air France, with certain conditions attached, including that the airline surrender up to 18 slots at Paris-Orly airport

--Air France-KLM expects to book a hefty loss in its first quarter due to the coronavirus crisis

By Olivia Bugault

Air France-KLM said Tuesday that it plans to launch a capital increase of up to 1 billion euros ($1.18 billion) for its French arm after the European Commission approved up to EUR4 billion in French state aid to recapitalize Air France.

The French government--which currently holds roughly 14.3% of Air France-KLM's capital--will participate in the capital raise, and would be the company's largest shareholder, though it has committed to keeping its stake below 30%. China Eastern Airlines also plans to subscribe but will maintain its share capital under 10%. The Chinese airline already owns approximately 8.8% of the carrier's share capital, according to FactSet.

The Dutch state, which currently holds a 14% stake, said it won't participate in the capital raise, but has approved the latest set of actions and indicated that it is continuing discussions with the European Commission on potential capital-strengthening measures for KLM, the group said.

Air France's recapitalizing measures also include the conversion of the EUR3 billion French state loan granted last May into a "perpetual hybrid bonds instrument."

The European Commission's approval of the recapitalization plan came with certain conditions, however, of which one is that Air France will have to surrender "up to 18 take-off and landing rights (slots) at Paris-Orly airport to a competing carrier in order to create or develop an existing base at that airport," the company said.

Air France-KLM said additional measures are likely to be implemented ahead of its general meeting next year as the decisions announced today won't be enough for the group's net equity to return to positive. This could include the issuance of new equity that would help reduce net debt, it said.

A resurgence in Covid-19 cases in several European countries has seen travel restrictions upheld across the continent, hurting the airline's activities in the first quarter, the company said. Air France-KLM expects an operating loss of around EUR1.3 billion in the first three months of the year, and forecasts a loss before interest, taxes, depreciation, and amortization of around EUR750 million.

"Over the coming months, and in particular at the beginning of the summer, the Group still expects a significant recovery in demand, assuming the positive effects of the accelerated vaccination campaigns in several countries could trigger less stringent restrictions on passenger travel across those countries," it said.

Write to Olivia Bugault at olivia.bugault@wsj.com

(END) Dow Jones Newswires

April 06, 2021 05:45 ET (09:45 GMT)

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