Air France-KLM CEO Suggests Further Recapitalization in 2021.
Ben Smith, Chief Executive Officer of Air France-KLM, suggested that the troubled airline may pursue additional recapitalization later this year, despite the French government’s recent 4 billion euro ($4.8 billion) bailout, which involves the selling of new shares.
“We still have significant debt that is weighing down our balance sheet,” the CEO said Monday at the World Aviation Festival’s virtual meeting. “This will have to be revisited later this year.”
Smith suggested another operation to bolster the carrier’s balance sheet at a time when uncertainty is weighing on Europe’s recovery in air travel. Although some countries have begun to lift lockdown measures, the vaccine rollout has been sluggish, and the reopening of stores and restaurants has not always resulted in the relaxation of border controls and quarantine requirements.
Earlier this month, the airline stated that France’s new assistance was just a “first step” toward restoring its balance sheet, although Finance Minister Bruno Le Maire also left the door open for additional assistance.
Increase in capital.
A capital increase of approximately 1 billion euros is included in the most recent bailout package and is scheduled to conclude later Monday. This will result in the French government raising its stake and demoting the Dutch government, which chose not to participate. China Eastern Airlines, another previous investor, is also participating.
“Banks, financial analysts, and funds have all indicated that it has been positive, even more so than I anticipated,” Smith said of the share problem.
The Netherlands is generally expected to publicly support the airline. Smith said on Monday that negotiations between the European Commission and the Dutch government, which has already gained permission to convert debt to equity, are continuing. He refused to speculate on the timing of the unveiling of any new kit.
France and the Netherlands provided the company with a combined 10.4 billion euros in direct loans and government-backed guarantees last year. This helped to inflate the company’s debt burden, while cash burn increased toward the year’s end as the health crisis escalated once more.
The subsequent 4 billion-euro French package for Air France involves the ongoing capital increase, which could bring the government’s stake to just under 30%, and the conversion of a previous 3 billion-euro French state loan into hybrid instruments.
Increased Customer Base
The airline’s cash burn will be slowed and it will return to a cash-neutral role by carrying more passengers and freight, Smith explained. During the summer months, the airline intends to increase capacity by at least 50%.
European airlines are banking on a travel recovery and have emphasized the importance of vaccine rollouts, as well as so-called immunity passports that would enable travelers to show evidence of Covid-19 vaccination, recovery, or a negative result. The European Union intends to introduce “digital green certificates” in time for holiday travel.
“I’m fairly optimistic” that some kind of vaccine passport will be in place by summer, Smith said, adding that he’s also “hopeful” that transatlantic travel will become easier in the coming months.