Air France-KLM hampered by state aid as rivals rush over deals

Air France-KLM is under increasing pressure to quickly repay its pandemic state aid, as rivals including Lufthansa rush into potential acquisitions in the aviation industry from which the Franco-Dutch group would otherwise be excluded.

The French state, which recapitalized the airline group last year under a deal that bars it from making any purchases, is “looking closely” at financial options with the company, Jean-Baptiste Djebbari said. , French Deputy Minister of Transport.

“The problem [for the company] is whether it will manage, financially, to untie itself quickly enough to be able to respond to market opportunities,” Djebbari said on Monday. The group was to be “one of the major players” in a post-crisis world and in a possible wave of consolidation, he added, allowing it to compete with Lufthansa and other rivals such as International Airlines Group, which owns of British Airways and Iberia.

German Lufthansa, which has repaid its own state aid, and Italian-Swiss shipping conglomerate MSC last week expressed interest in buying a majority stake in Italian state-owned ITA Airways, the successor to bankrupt Alitalia and part of the SkyTeam airline alliance with Air France-KLM and Delta.

The Franco-Dutch group has no cash flow problems and would have been a natural suitor but was constrained by its bailouts, said two people familiar with the matter.

ITA’s slots at Milan’s Linate airport, which feed into corresponding flights to Paris, made it particularly attractive, one of the people added.

Air France-KLM could still consider ways to formulate an approach, with a promise to buy into the group later, the person added, although Lufthansa and MSC have requested an exclusive negotiation window with ITA for almost three months. .

Air France-KLM received just over €10 billion in state-guaranteed loans and direct aid from the French and Dutch governments when the pandemic hit in 2020.

A 4 billion euro recapitalization by the French state last year, via a mix of new shares and hybrid debt, prevents the group from taking more than 10% of the capital of any competitor until the three quarters of this aid is reimbursed.

The appearance of the fast-spreading variant of the Omicron coronavirus in late 2021 derailed plans for an expected fundraiser, which would have reduced state support.

But aside from business travel, air traffic is picking up, helping to restore Air France-KLM’s attractiveness to investors, and the group could also consider a hybrid debt issue, people familiar with the matter said.

Air France-KLM, nearly 29% owned by the French government and 9% by the Dutch state, said it had “noted” the decision by Lufthansa and MSC from ITA and “is following developments in the coming weeks”.

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