Europe News

Air France-KLM to receive up to $12 billion in state aid to deal with Covid-19 blow out

Key Points
  • The deal, which has yet to be approved by competition authorities, includes conditions in return for the handout.
  • KLM will not be able to pay dividends or award bonuses for as long as it receives state support and workers will have to take a pay cut.
  • Market expectations of further state support to troubled airlines lifted the sector during European trading hours.
The Air France-KLM group's new logo is pictured during the group's 2018 financial year presentation in Paris on February 20, 2019.
ERIC PIERMONT

Air France-KLM will receive up to 11 billion euros ($12 billion) in financial aid from the French and Dutch government as the coronavirus pandemic pushes many airlines closer to bankruptcy.

The Dutch government said on Friday that it would provide between 2 billion euros and 4 billion euros in state aid to KLM, while the French cabinet announced a support package of 7 billion euros for Air France.

The deal, which has yet to be approved by competition authorities, includes conditions in return for the handout. KLM will not be able to pay dividends or award bonuses for as long as it receives state support and workers will have to take a pay cut, according to a statement.

The airline will also have to adopt a greener approach, for example, by cutting back the number of night flights.

Passenger demand could drop 55% in 2020

The deal comes at a time when the airline industry is facing an unprecedented challenge, with international travel brought to a near standstill as a result of a global health crisis. The International Air Transport Association (IATA) said last week that the potential revenue loss by European airlines this year could be as high as $89 billion.

The IATA also estimated that passenger demand could be 55% below 2019 levels and around 6.7 million jobs were thought to be at risk.

Market expectations of further state support to troubled airlines lifted the sector during European trading hours. Travel stocks rose above 3% Monday morning, with Lufthansa leading the gains up by more than 9%.

The German government is negotiating a financial package with flagship carrier Lufthansa.

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Speaking on a German radio station on Monday, Peter Altmaier, economy minister, said Berlin wants "large and important companies that play a role in the world market to remain competitive after the crisis," according to Reuters.

Lufthansa said Thursday that its revenues fell by almost 1.4 billion euros in March alone on the back of the ongoing pandemic. The airline also said it expects a "significant decline in liquidity in the coming weeks."

In Italy, the government announced Friday it will be taking full control of Alitalia in June.

Virgin Atlantic has also asked the U.K government for financial support, while EasyJet has secured a £600 million loan from the U.K. Treasury to offset some of the economic shock from the virus.