Air France-KLM secures £6.13 billion aid from French government

Air France-KLM secures £6.13 billion aid from French government
Written by:
Wajeeh Khan
25th April, 12:44
Updated: 28th April, 13:12
  • Air France-KLM secures £6.13 billion government aid to cushion the blow from COVID-19.
  • French government is expected to expand its investment in Air France-KLM to stir nationalisation.
  • CEO Benjamin Smith suspends his bonus for 2020 as the company faces financial challenges.

The Coronavirus pandemic has brought the global airline industry to a near halt. Worldwide airlines are seeking financial support from their respective governments to survive the unprecedented economic challenge. In a statement on Friday, Air France-KLM (EPA: AF) said it secured £6.13 billion in aid from French government to cushion the blow from COVID-19.

As per the agreement, Air France-KLM will receive £2.63 in billion government loan and an additional £3.5 billion in bank lending. The Dutch government is also planning a £1.75 billion to £3.5 billion aid for KLM.

After securing the funding, CEO Benjamin Smith sent a video message to the company’s staff and highlighted that the aid must not be considered a blank cheque. The team will have to take calculate measures regarding costs and performance to get the most out of the government aid.

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French Government To Expand Investment In Air France-KLM

Other prominent airlines that are currently negotiating financial support from the government include Germany’s Lufthansa as Coronavirus driven uncertainty remains at its peak. French Finance Minister Bruno Le Maire also highlighted on Friday that government support worth £4.38 billion for automaker Renault is also in the pipeline.

Air France-KLM is jointly owned by the Dutch and French governments with each currently holding around 14% of the company. Owing to recent disputes between the governments over Air France, however, the company recently highlighted that French government is likely to expand its investment in the airline next year.

According to Air France-KLM, the board is expected to discuss increasing capital by the annual shareholder meeting next year. The company also accentuated that French government has already shown the intention to evaluate the conditions for expanding its investment.

CEO Smith Suspends His Bonus For 2020

Owing to the financial challenges posed to Air France-KLM, CEO Smith also suspended his bonus for the year. According to Smith:

“This financing will give us the opportunity to rebuild. Faced with the upheaval the world is going through, we are going to have to rethink our model immediately.”

Smith took over the role of the CEO at Air France-KLM in 2018. The executive who has previously served at Air Canada is focused on expanding the company’s low-cost division, Transavia.

Air France-KLM closed last week at £3.90 per share in the stock market that marks an over 50% decline in 2020 so far.

The airline is currently valued at £1.69 billion and has a price to earnings ratio of 7.13.

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