Econostrum | Economic News in the Mediterranean



European Commission accepts €4bn recapitalisation of Air France

Air France will benefit from a €4bn recapitalisation (photo: F.Dubessy)
Air France will benefit from a €4bn recapitalisation (photo: F.Dubessy)
FRANCE. As part of its temporary state aid framework procedure during the Covid-19 period, the European Commission accepted, on Tuesday 6 April 2021, the French State's plan to recapitalise Air France.

Through its holding company Air-France-KLM, the airline (which is making a net loss of €7.1 billion in 2020 and €1.3 billion in the first quarter of 2021) will be able to benefit from a maximum contribution of €4 billion to its equity capital. "The public support will be subject to conditions, notably to ensure an adequate return to the French State, as well as new measures to limit distortions of competition. In particular, Air France has undertaken to make slots available at the congested Paris Orly airport, where Air France has significant market power. These arrangements give competing carriers the opportunity to expand their operations at this airport, ensuring fair prices and greater choice for European consumers," says Margrethe Vestager, executive vice-president for competition policy. Air France will therefore have to give up eighteen flight slots at the Paris hub to other airlines.

A €3 billion loan converted into a stake

The €4 billion is divided into two parts. Firstly, a €3bn state loan already granted by France (and approved by the European Commission in May 2020) which will be converted into a "hybrid capital instrument".
"We had made a loan of three billion euros to Air France, this loan, we are going to transform it into a state participation in the company. These three billion euros were a temporary aid, they will become a definitive aid", commented Bruno Le Maire, French Minister of the Economy and Finance.

Secondly, an injection of capital through the subscription of new shares in the framework of a share capital increase open to existing shareholders and the market, up to a limit of €1 billion. "We are going to increase our stake in Air France's capital, since the State is going to take part in an increase in the company's capital, and this stake could go up to one billion euros", confirmed Bruno Le Maire, specifying that Paris could increase its stake to "a little less than 30% of Air France's capital", compared to 14.9% today.

Air France has undertaken to "develop a credible exit strategy within twelve months of the granting of the aid, unless the State's intervention is reduced to a level below 25% of the equity capital by then", says a European Commission press release.

Another condition is that "as long as the recapitalisation is not fully repaid, Air France and its holding company are subject to a ban on dividends, payment of non-compulsory coupons and share buybacks. In addition, until at least 75% of the recapitalisation is repaid (in accordance with the provisions of the temporary framework), a strict limitation on the remuneration of their management applies, including a ban on bonus payments. These conditions are also intended to provide an incentive for Air France, its holding company and its owners to buy back the State's shareholding obtained as a result of the recapitalisation as soon as the economic situation permits'.


Eric Apim

Tuesday, April 6th 2021

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