France will have a greater shareholder presence than the Netherlands
The Air France-KLM bailout may jeopardize the marriage. The major capital readjustment announced Tuesday should help the company stay afloat if the recovery is delayed. But the increase in French ownership could make relations with the Netherlands even more difficult.
With nearly € 9 billion in cash or overdraft, the airline is not about to run out of money. But its net debt load of 11.6 billion, much of it assumed in the last 12 months, is clearly too much to guarantee a stable long-term flight. Its indebtedness is 3 times higher than its expected ebitda for 2023, when the recovery should be well under way.
The capital restructuring will bring that debt under control. By converting a $ 3 billion public loan into hybrid capital, Paris helps reduce claimed leverage. Suppose The Hague does something similar with a $ 1 billion loan in 2020, and add another $ 1 billion from a share issue: net debt will drop to $ 6.6 billion. That’s about 1.6 times the ebitda analysts forecast for 2023. Since Air France-KLM is targeting a multiple of around 2 times, it has room for maneuver if the recovery suffers turbulence.
But the deal could also sow more seeds of contention. Paris participates in the capital increase, but the Netherlands does not. This could alter the delicate balance that The Hague sought to achieve in 2019 when it acquired a 14% stake, equal to that of Paris. Depending on how many current shareholders take the offer, France could end up with almost 30% of the shares, just below the threshold for a takeover bid. Its $ 3 billion in equity debt potentially gives it more weight.
Tensions were already great before the virus, as KLM felt in the background to the less profitable Air France. Last year, the two governments provided assistance mainly at the local level. With such a large share from France, the marriage seems even more unequal.