Air France-KLM expects bailout within weeks as cash burn mounts

[PARIS] Air France-KLM is poised to get a fresh government bailout after burning through 2.1 billion euros (S$3.36 billion) in the final quarter of last year as a resurgent Covid-19 pandemic delayed any recovery in air travel.

Talks are ongoing between the carrier's biggest shareholders, the French and Dutch governments, and the European Commission about a rescue package, according to chief financial officer Frederic Gagey. Air France-KLM reported Thursday it had 9.8 billion euros of liquidity and credit lines at its disposal at the end of 2020 compared with 12.4 billion euros three months earlier.

"It's a question of days or weeks, not months," Mr Gagey said on a conference call when asked about the timing of the recapitalisation plan. "We aren't in a situation that is too difficult, we still have time. There is no urgency."

The airline's cash outflow jumped from 1.2 billion euros in the three months through September after governments imposed lockdowns in a bid to curb a fresh wave of coronavirus cases. The carrier painted a grim outlook for this quarter, saying it will operate at 40 per cent of 2019 capacity and expects losses to worsen.

France and the Netherlands have been in talks for months on a fresh bailout for Air France-KLM following the 10.4 billion euros in loans and guarantees granted last year. Both states have signalled their intention to support the carrier, while opposing European Commission demands that it relinquish airport slots in exchange for additional aid.

COMPLEX NEGOTIATIONS

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

While Mr Gagey declined to comment specifically about any so-called remedies that could be asked of the airline by the Commission, he acknowledged landing rights at Paris-Orly airport are among the issues on the negotiating table.

"There can't be elements that the group finds too negative for the future of its strategy," he said. Comparisons with the slots rival Deutsche Lufthansa had to relinquish in order to get state funding "are complicated".

While the airline aims to have an agreement by May, a decision is only expected to be made after the Dutch elections on March 17. Looking further ahead, Air France-KLM said it plans to ramp up capacity towards summer 2021 and expects recovery in the second and third quarter of 2021 thanks to the deployment of vaccines.

Air France-KLM has cut jobs in recent months in a bid to reduce costs. The Dutch arm last month unveiled a plan to eliminate 1,000 positions on top of the 5,000 shed last year, while Air France's staff cutbacks through 2022 include the equivalent of 8,500 workers.

A bright spot has continued to be an increase in demand for cargo, which generated a 59 per cent increase in fourth-quarter revenue to 764 million euros. Lower capacity worldwide due to the grounding of fleets has meant an increase in freight prices, Mr Gagey said.

The stock has more than halved in the past 12 months, valuing the carrier at 2.1 billion euros.

BLOOMBERG