Air France-KLM to sell 2.26b euro of new shares to cut debt

AIR France-KLM plans to sell about 2.26 billion euros (S$3.3 billion) of new shares to shore up its balance sheet and repay a chunk of the state aid that helped the carrier survive the Covid-19 crisis.

The proceeds of the planned rights issue will be used to reimburse about 1.7 billion euros of subordinate bonds issued in April last year and held by the French government, and to further reduce the company’s debt, the Franco-Dutch airline said Tuesday (May 24) in a statement. The subscription period is set from May 27 to Jun 9. 

“We want to be in a position to seize any opportunity in a changing aviation sector and to be able to accelerate our environmental commitments,” chief executive officer Ben Smith said in the statement.

The transaction will bring Air France-KLM closer to completing its plans for a 4 billion-euro capital increase as it seeks to repay debt in line with European Union requirements on state funding, which currently bar the airline from participating in the consolidation of the industry that’s been marred by the pandemic.

 Earlier this week, the carrier said it’s in talks with Apollo Global Management for a 500 million-euro capital injection into an Air France affiliate that owns a pool of spare jetliner engines used in the Paris-based carrier’s maintenance operations.

Government stakes

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The share-sale plan, improved earnings and other measures to strengthen the balance sheet will enable the company to further repay the French state aid in coming quarters, Air-France-KLM said. That will also reduce the financing cost of the company. 

The French state, which owns 28.6 per cent of Air France-KLM, plans to participate in the rights issue to keep its shareholding unchanged, the airline said. The Dutch government also wants to keep its 9.3 per cent stake, provided it gets approval from the country’s Parliament on time, the company added.

Shipping giant CMA CGM SA aims to invest as much as 400 million euros in the transaction to take a stake of as much as 9 per cent of the airline as part of an air-cargo alliance announced earlier this month.

China Eastern Airlines and Delta Air Lines will see their stakes - of 9.6 per cent and 5.8 per cent respectively - in the Franco-Dutch carrier about halved as they have committed to participate in the rights issue on a cash neutral basis. They will sell some of their subscription rights to CMA CGM. BLOOMBERG