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 yesterday in a statement as it reported a wider first quarter operating loss of €1.2bn. Shareholders will be asked later this month to approve proposals that would potentially raise billions of euros.
The action could help lower long-term debt that totall ed €14.2bn at the end of the first quarter, levels that Chief Executive Officer Ben Smith has said were “holding back our balance sheet”. He signalled last month that a further recapitalisation 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 set plans to increase capacity this quarter and next, an approach that analysts say carries risk. In a sign that airlines remain uncertain about how fast demand will recover, rival Swiss said it would pare back its fleet and cut more jobs.
“Air France-KLM continues to plan a capacity return faster than peers,” Bernstein analyst Daniel Roeska wrote in a note, saying that this risks diluting fares and incurring unnecessary expense. “While liquidity resources are currently high, they are draining quickly.”
Air France-KLM said losses this quarter would be on a par with the previous three months, when restrictions on movement remained and empty planes fuell ed 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”.
Air France-KLM plans to offer about 50pc of 2019 network capacity this quarter and 55pc to 65pc during the following period, according to the statement. That’s slightly higher than the roughly 48pc 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 38pc of the airline.
Last month, Air France-KLM raised €1.04bn in a new share issue as part of a €4bn French rescue plan. The move followed €10.4bn in government loans and guarantees granted last year.
Mr 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.
While France has also said it’s prepared to offer more support, both governments have sought to avoid a renationalisation of the company.
The CFO called the fundraising process “recycling of state aid”, meaning it is turning aid into instruments that can be traded.
Bloomberg