Air France-KLM has become the first European mega-airline to receive government support, though this might only complicate the relationship between the French and Dutch even more.
The complicated Air France-KLM relationship
Among the major European airline groups, Air France-KLM is probably the most complicated politically. To provide a brief summary of the problem:
- There has long been bad blood between the Dutch and French regarding the airline group
- The Dutch feel like they’ve been supporting the French while being treated as the second class airline in the group, as KLM views themselves as more profitable and stable than Air France, while the parent company is headquartered in Paris
- Air France has historically been a basket case in terms of efficiency and labor relations, though that has improved with Ben Smith as the new CEO of Air France-KLM
- This recently become more political, as we saw the Dutch increase their stake in Air France-KLM to match France’s stake, meaning that each airline owns about a 14% stake in the airline group
The relationship between Air France & KLM is complicated
Air France-KLM secures government relief package
Air France-KLM has been in talks with French and Dutch governments regarding aid measures that would enable the company to maintain solvency.
The French government has now finalized a relief package for the company for a total of up to €7 billion, which would include:
- A French state-backed loan of €4 billion granted by six banks; this loan is guaranteed up to 90% by the government, and has a maturity of 12 months, with two consecutive one-year extension options
- A shareholder’s loan of €3 billion from the French state, which has a maturity of four years, with two consecutive one-year extension options
The Dutch government also plans to provide €2-4 billion worth of support, though it’s expected that this will come with some conditions.
France has provided up to a €7 billion relief package
Could we see Air France & KLM break up?
Dutch website Luchtvaart Nieuws suggests that the current situation could lead to a breakup between Air France & KLM. They suggest that executives at KLM are considering this in light of the crisis.
The argument essentially boils down to this:
- When it comes to the aid packages, the Dutch government doesn’t want to be funding Air France, and the French government doesn’t want to be funding KLM
- KLM and the Dutch have long been concerned about Air France reducing costs, and they believe that the €7 billion in aid from the French government will have the opposite impact, and strengthens the position of the French government
- KLM increasingly feels that the two companies would be better off independent, and instead just cooperating as necessary (for example, with their transatlantic joint venture, etc.)
- KLM doesn’t need as much aid as Air France, and they don’t want the French government taking further equity in the airline, creating more of an imbalance between the two countries
There’s no doubt that this is going to be complicated. I have a ton of respect for Air France-KLM CEO Ben Smith, and I’ve been impressed by his efforts since he took over the airline group.
He has been trying to undo years of mismanagement, and a lot of progress was being made before this all started. Understandably he wants more efficiency and closer cooperation between the two airlines. Because if the two airlines are going to be part of the same airline group, they need to work more closely together.
At the same time, I understand where KLM’s skepticism comes from, when you consider the history here. There’s no doubt that the current pandemic only complicates the situation further, as Air France will potentially need more aid than KLM.
The Dutch may not want Air France-KLM anymore
Bottom line
This is a complicated situation. I understand why the Dutch have been so skeptical of the airline group historically, though I also think in the past 18 months a lot of things have moved in the right direction.
With the current pandemic essentially creating a reset in the industry, much of that progress will likely be wiped out. I’m hoping for the best for the airline group here, and have the utmost respect for all three CEOs (of Air France, KLM, and of Air France-KLM).
What do you make of the situation between Air France and KLM?
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