€10bn euro bailout will keep Air France-KLM afloat less than year: CEO

The Air France-KLM group is facing financial crisis in the wake of the Covid-19 pandemic.
The Air France-KLM group is facing financial crisis in the wake of the Covid-19 pandemic. AP - Remy De La Mauviniere

The CEO of Air France-KLM has said more than 10 billion euros in loans from the French and Dutch governments will only keep the airline afloat for less than a year. Benjamin Smith said the group needs to do "much more" to reduce costs in the face of the economic crisis caused by the Covid-19 pandemic.


“We knew before the pandemic, that we had to transform the group to make it stronger," said Smith in an interview with French daily L’Opinion. "The plan we announced in November 2019 is still relevant, but the crisis is forcing us to accelerate it."

The beleaguered carrier suffered a loss of 2.6 billion euros in the second quarter of 2020 due to the closure of air traffic due to the Covid-19 pandemic. This followed a loss of 1.8 billion euros in the first quarter.

“We are making all possible savings within the group and in the companies, which is essential to be able to get through the months to come,” Smith said in the interview.

He mentioned that among the key areas is the “reorganisation of the domestic network of Air France which the airline’s biggest loss market.”

Speaking about the impact of the proposed environmental tax as suggested by the Citizens’ Climate Convention, Smith said it would be catastrophic for the carrier. “For example, Air France generated operating income of only 280 million euros before the (Covid-19) crisis. How would it be able to bear a tax that would cost the company between 1.2 and 1.3 billion euros per year?” he said, adding this tax would instantly cause tens of thousands of job cuts.

“Moreover, it would be illogical and counterproductive from an environmental point of view. Our best way to reduce CO2 emissions is to renew our fleet. A new plane immediately means 25 per cent less greenhouse gases. Such a tax would prevent us from buying 20 aircrafts a year,” he said.

Future uncertain

Smith’s remarks come a few days after the Dutch finance minister Wopke Hoekstra had warned that the airline’s survival was not guaranteed if the economic crisis caused by Covid-19 continued.

Speaking to Dutch television NPO, Hoekstra stressed the need to cut costs. He said that the bailout for KLM must be accompanied by a comprehensive restructuring plan as well as commitments to re-establish performance and competitiveness.

France and the Netherlands, who each own 14 percent stake in the group, have provided 7 billion euros and 3.4 billion euros respectively in aid this year.

CEO Smith estimated that the financial aid will allow the airlines to hold out for last less than twelve months if the passenger traffic remained at its current level. “We are discussing with our shareholders how to strengthen our balance sheet beyond this period,” he said.

As a part of the cost-cutting measures, Air France had announced in June that it would cut almost 7,600 jobs by the end of 2022 and KLM up to 5,000 jobs.


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