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Air France-KLM Weighs Fresh Fundraising as Losses Mount - BLOOMBERG

MAY 06, 2021

(Bloomberg) --

Air France-KLM is considering raising more capital to repair its battered balance sheet as the struggling carrier counts on a summer air-travel resurgence to stem losses.

Equity and quasi-equity financial instruments are being studied, the airline said Thursday in a statement as it reported a first quarter operating loss of 1.2 billion euros ($1.4 billion). Shareholders will be asked later this month to approve proposals that would potentially raise billions of euros.

The money could help lower long-term debt that totaled 14.2 billion euros at the end of the first quarter, levels that Chief Executive Officer Ben Smith has said were “holding back our balance sheet.” He signaled last month that a further recapitalization may be necessary after the airline group’s latest rescue from the French government.

In the coming months, Air France-KLM is counting on global vaccination campaigns to revive consumer demand for travel. It predicted losses this quarter would be on a par with the previous three months, when restrictions on movement remained and empty planes fueled cash burn.

“There is still a long road ahead,” Chief Financial Officer Frederic Gagey said on a call with journalists. “There is a very small risk of a cash crisis” unless the summer season turns “catastrophic.”

Capacity Plans

Air France-KLM plans to offer about 50% of 2019 network capacity this quarter and 55% to 65% during the following period, according to the statement. That’s only slightly higher than the roughly 48% achieved during the first quarter, when Covid-19 surged and many countries slammed shut their borders.

The carrier has survived the coronavirus pandemic only through massive state aid from France and the Netherlands, which together now own about 38% of the airline. Last month, Air France-KLM raised 1.04 billion euros in a new share issue as part of a 4-billion-euro French rescue plan. The move followed 10.4 billion euros in government loans and guarantees granted last year.

Gagey declined to put a figure on how much more the carrier plans to raise, saying only that part of it could come from the Dutch government, which is still in talks with the European Commission on a rescue for KLM.

He called the fundraising process “recycling of state aid,” meaning that it’s progressively transformed into instruments that can be traded on the market so as to reduce the company’s leverage. This is part of the state exit strategy that the European Commission requires, he said.

The carrier’s 8.5 billion euros of available liquidity and credit lines at the end of March “can be considered comfortable, given the expected recovery in the summer,” Air France-KLM said in the statement.

That position dwindled from 9.8 billion euros at the end of 2020 and 12.4 billion euros three months earlier.

Still, cash outflows slowed to 1.3 billion euros in the latest quarter, from 2.1 billion euros in the fourth quarter of last year.

Lufthansa’s Plan

Rival Deutsche Lufthansa AG has also relied on state aid to get through the health crisis and its shareholders this week approved a capital raise of up to 5.5 billion euros.

The German carrier has reined in capacity plans for the year, expecting to offer 40% of pre-pandemic levels following a 19% showing in the first quarter. British Airways owner IAG SA is set to report results on Friday.

One bright spot for Air France-KLM in recent months has been higher demand for cargo, which generated an 80% increase in first quarter revenue to 839 million euros.

Earnings Highlights

  • First-quarter revenue fell 57% to 2.2 billion euros
  • Air France-KLM first-quarter loss before interest, taxes, depreciation and amortization surged more than 10-fold from a year earlier to 627 million euros.
  • Net debt was 12.6 billion euros end-March vs 11 billion euros end-2020
  • Net quarterly loss shrank 18% to 1.5 billion euros

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