Air France-KLM was this year, like the whole aviation sector, hit hard by the corona crisis. Only thanks to billion-dollar support from the French and Dutch governments could the airline keep its head above water.
Share issue
In addition to hundreds of millions of wages subsidy via the NOW scheme, KLM received from the Dutch government 3.4 billion euros of emergency loans and guarantees. Air France received similar support from the French government.
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Because government support may be insufficient, now that it appears that the corona crisis will probably last longer than hoped for, the French and Dutch governments are thinking about the purchase of shares. That confirmed the French Secretary of State for Transport Jean-Bapiste Djebbari yesterday.
Majority Shareholder
This form of aid differs from the previous rescue package in that it allows the airline company to raise money that, unlike the previously provided loans, does not have to be repaid.
Governments will probably become the majority shareholder of the airline through such a share issue. Currently, the French and Dutch governments are ‘only’ major shareholders, each with an interest of approximately 14 percent.
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Dilution
Due to the high risk of bankruptcy, investors are expected to make little or no investment in the new shares issued by the company. These pieces must therefore be bought by the authorities. This will dilute the interest of the other shareholders.
Moreover, it is expected that this dilution will be enormous. After all, the value of the Air France-KLM share has plummeted due to the corona crisis. At the beginning of this year, the share was still traveling around 9 euros. There is currently about 3 euros left.
Control
In order to raise a substantial amount, the company will therefore have to issue a relatively large number of shares. The percentage stake of the current shareholders who are not buying new pieces can thus be wiped out.
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If the French and Dutch governments together acquire a convincing majority interest, they also gain control over the company. In fact, Air France-KLM will be nationalized. Compare it with the government’s interest in ABN Amro, which is still 56 percent despite the IPO in 2015.
KLM independent
Yesterday, State Secretary Djebbari acknowledged that the issue of shares allows for ‘technical nationalization’. He also stated that the integration of KLM into Air France is ‘on the agenda’.
According to the Telegraph this brings back the unrest within KLM turbulent weeks around the austerity of employment conditions and the previous support package.
Minister of Finance Wopke Hoekstra tells the newspaper that it is still uncertain whether the Dutch government will participate in a share issue. He is not positive about the further integration of KLM into Air France. “It’s not a foregone conclusion whether things will get better with more integration. It’s not something I’m immediately very excited about.”
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