World News – UA – Pandemic injects politics into Air France-KLM’s survival plan

(Bloomberg) – Air France-KLM’s future as a combined company will be put to the test as France and the Netherlands prepare for critical talks on strengthening finances weakened carrier, according to the French Minister of Transport

The discussions will raise fundamental questions about how the airline is structured and supported by the two countries, Jean-Baptiste Djebbari said in an interview Governments pledged 104 billion euros ($ 12 billion) earlier this year to support the finances of the pandemic-stricken carrier, but will have to go further to ensure its survival

« Do we really want an integrated business or not? » Djebbari, 38, said in his office in Paris « Within a contract or an integrated group, the benefits must be shared and fair »

Jean-Baptiste Djebbari said discussions over aid to Air France-KLM raised questions about the company’s future

The global health crisis has further accentuated the already precarious relations between the two main shareholders of Air France-KLM The fall in air transport and the resulting losses for the carrier are pushing France and the Netherlands to seek a way to collaborate on a possible injection of equity, barely 18 months after a bitter and unprecedented dispute

In February 2019, the Dutch government revealed it had secretly amassed a stake to match France’s 14% stake, blinding Paris and revealing its intention to exert more influence over rival Air France-KLM from British Airways owner IAG SA and Deutsche Lufthansa AG Governments have masked their differences, but the tension remained

Latest dilemma follows an outbreak of virus cases that plunged airlines into further turmoil after short resumption of travel during the summer months Air France-KLM CEO Ben Smith said said talks are underway with shareholders for a recapitalization as state bailout is only enough for less than a year

The company is expected to report its results on Friday, but has already warned of ‘significantly negative’ second-half earnings after record quarterly loss in July

« What is now on the agenda is how the group can recover, » said Djebbari, licensed business jet pilot and former executive of Luxembourg operator Jetfly « What will be the role of states, and in the context of its new strategy, what will be the capital needs, what type of nationalization – if this is what is necessary – and under what conditions »

The scale of the issues facing Air France-KLM underscores the radical nature of the crisis for governments and carriers alike Lufthansa, which has former national carriers in Austria, Switzerland and Belgium, has avoided l ‘insolvency thanks to a multi-government bailout of 9 billion euros

The support of the French state to Air France-KLM will not weaken even if the resumption of air transport is only done gradually, declared Djebbari, citing its strategic and geopolitical importance « extraordinary » The French Minister of Finance, Bruno Le Maire, supported the carrier in difficulty by affirming that the State would guarantee the survival of Air France, while his Dutch counterpart was more circumspect

The Netherlands took longer to provide loans and guarantees to KLM than the French to Air France, leaving open the question of how much money each state is willing to invest in the airline and if the Dutch will be on board

« The participation of the Dutch state, as a shareholder of both the holding company and KLM in the capital increase, depends on demand, situation and conditions », told Bloomberg Dutch Finance Minister Wopke Hoekstra « We will consider in due course whether we will participate again »

The minister, who said in September that Air France-KLM’s survival « is not certain », declined to comment on the scope of discussions with the French government, saying any further requests for support would be discussed with the private company Hoekstra is expected to decide this week whether or not to accept KLM’s cost-cutting plan linked to the Dutch 3part of the € 4 billion bailout

The challenges of reaching a political agreement are magnified by years of bad blood between the two units, which came together in a merger in 2004 KLM has long lamented French control, the lower margins of ‘Air France and the history of labor disputes

In the interview, Djebbari said that KLM had benefited more than the French branch over the past decade from being part of the group due to the support it received from the Netherlands at its Schiphol hub in Amsterdam

« Air France-KLM is not quite a group, few of its operations are shared and the Dutch have a lot of power, » he said « The question is what we need to do and what we want to do together « 

As Minister of Transport, he took a particular interest in the air transport industry because of his background After studying aeronautical engineering in Toulouse, the headquarters of Airbus SE, Djebbari stayed at the French civil aviation regulator and as an expert for the courts

KLM passenger plane at Schiphol Airport in Amsterdam, Netherlands Djebbari said that KLM had benefited more than the French branch

Four years ago, as he was pushing forward his project to create a regional airline, he met then Economy Minister Emmanuel Macron and threw his hat in the ring, winning a seat in parliament in 2017

There he led an effort to overhaul SNCF’s loss-making and heavily-indebted state railway – a bastion of labor disputes that has proven to be a deep trap for a range of political leaders

The pandemic could have a lasting effect on public transport systems, including trains and subways, as people could end up working more from home, Djebbari said

Likewise, with cuts to Air France’s domestic services in deficit and low-cost competitors leaving regional airports, certain regions of France could find themselves without vital connections for their economy

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