French Govt to Doubles its Stake in Air France Following Approval of a $4.7 B Recapitalization Plan

Air France announced plans to strengthen the Group’s capital which will see the French government contribute 4 billion euros ($4.7 billion) to help the pandemic stricken airline cope with its rising debt. French Finance Minister Bruno Le Maire says the recapitalisation will make the state the biggest shareholder in Air France. The government will more than double its stake from the current 14.3% to nearly 30%.

The plans, which involve a capital increase of 1 billion euros ($1.18 billion) and a conversion of a 3 billion euro ($3.56 billion) french government direct loan drawn into a perpetual hybrid bonds instrument, received approval from the board of directors, aiming at restoring the Group’s negative equity and reinforcing its cash position.

Air France-KLM Group CEO Benjamin Smith says the recapitalisation measures will “provide Air France-KLM with greater stability to move forward when recovery starts, as large-scale vaccination progresses around the world and borders reopen.”

Inside the Air France Recapitalization Plan

The increase, subject to market conditions and approvals of the Financial Markets Authority, will be composed of a private placement for institutional investors, a public offering and a priority period allowing shareholders to support the transaction. Investors like China Eastern Airlines have expressed their interest in the increase, while the Dutch government and Delta Airlines will not subscribe to the capital increase.

The capital increase will run simultaneously with the 3 billion euros conversion for the direct loan provided by the state in May 2020. The conversion will improve Air France-KLM’s equity by 3 billion euros with no cash impact.

According to the Group’s statement, the recapitalisation measures are a first step towards lowering the Net Debt/EBITDA ratio to below 3X by 2023, aiming at below 2X by 2023.

Air France will relinquish 18 slots per day, an equivalent to nine round trips to competing airlines at Orly, the second largest airport in Paris. The move will shield the airline’s low-cost carrier from unfair competition.

Air France-KLM expects an EBITDA loss of 450 million euros, down from 1.69 billion euros for 2020.

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