Air France-KLM finds fresh capital, issues 1.9 billion new shares

Finally, Air France-KLM announced how the company wants to pay off the corona support of the last two years and how it wants to strengthen its own balance sheet.

After investments by French freight carrier CMA-CGM and US private equity fund Apollo, which were announced last week, Air France-KLM published the third and largest step of its recapitalization on Tuesday.

On the day of the shareholders’ meeting, the group launched a rights issue that should raise EUR 2.26 billion. Air France-KLM wants to use 75 percent of this to reduce its debt to the French government. The rest is used to strengthen the balance. The company is issuing 1.9 billion new shares. That’s three times the current number.

The rights issue, in which current shareholders can subscribe first, is emphatically not a support package like the 3.4 billion euros in bank guarantees that the Netherlands gave and the 7 billion euros in support from France. It is an ordinary investment, without the extra conditions that the European Commission attached to the temporary corona support packages. “We want to be able to seize every opportunity in a changing aviation and to accelerate our efforts in the field of sustainability,” Air France-KLM CEO Ben Smith said on Tuesday.

The rights issue is emphatically not a support package, but an ordinary investment

scrubbing

With regard to the issue, Air France-KLM reported on Tuesday that the French state has promised to participate for 645 million. The French stake, for example, remains at almost 30 percent, even if, according to EU rules, this must be reduced within a few years.

The Netherlands also wants to maintain its current interest of 9.3 percent in the aviation company. The Dutch government therefore plans to invest 220 million euros in new shares. The cabinet is asking the Senate and House of Representatives to approve this participation very quickly.

In 2019, then minister Wopke Hoekstra (Finance, CDA) bought extra Air France-KLM shares without prior permission from the Dutch parliament. The Court of Audit later reprimanded Hoekstra for this. Minister Sigrid Kaag (Finance, D66) and Minister Mark Harbers (Infrastructure and Water Management, VVD) do not want such scrubbing either.

In a letter to the House of Representatives Kaag and Harbers wrote on Tuesday: “With a stake of 9.3 percent, the Dutch state remains one of the largest shareholders of the company. This position allows the Dutch state to keep a better eye on the course of Air France-KLM with regard to topics that are important to the Dutch state, such as sustainability and equal hub development.”

By the latter, the ministers mean that Schiphol will remain an important hub in the Air France-KLM network and that, for example, no flights will be moved from Amsterdam to Paris in the future. The cabinet therefore extended the so-called state guarantees with Air France-KLM earlier.

French freight forwarder

Air France-KLM gets a new shareholder, the French logistics group CMA-CGM. The container shipping company that wants to grow in air transport is investing a maximum of 400 million euros in Air France-KLM. For example, CMA-CGM is building up a 9 percent interest. The shares will not come from the French state, as previously expected, but from China Eastern Airlines and Delta Air Lines. Both airlines are diluting their interests.

Not all shareholders of Air France-KLM are happy with this dilution as a result of the rights issue. On the stock exchange, the share – 44 percent is freely tradable – steadily declined on Tuesday. At the end of the day, Air France-KLM closed at 3.45 euros, 21 percent lower than Monday’s closing price. With the announcements about CMA-CGM and Apollo last week, the price had actually risen.

During the meeting in Paris, several smaller shareholders complained about the decline in their holdings. This led to virtually no response from the management. The announcement of a Dutch organization that fights against advertising for the ‘fossil sector’, including aviation, also provided only a clincher for KLM CEO Pieter Elbers. The foundation Fossil-free NL goes to court to have KLM stop its “misleading advertisements” about sustainable flying.

Shareholders were more resistant to CEO Smith’s bonuses. On top of his annual salary of 900,000 euros, he will receive 3.3 million euros for 2021. Smith can look forward to a similar bonus in 2022. A quarter of the votes were against variable pay. It was already known that the Dutch state would vote against Smith’s bonus. 75 percent in favor was enough to get Smith his bonuses – even though he won’t get them until the group has phased out more than 75 percent of its state aid.