Ryanair has called on the EU Commission to block the latest illegal State Aid of €3.4 billion to Dutch flag carrier KLM, which equates to a subsidy of €200 on behalf of every man, woman and child of Holland. The Dutch Government are great at preaching fiscal conservatism to other EU countries but when it comes to bailing out flag carrier airlines they write subsidy checks even faster than Mrs Merkel.
Ryanair Group CEO Michael O’Leary said:
“16 years after Air France’s takeover of KLM, every Dutch citizen now has to pay €200 each to prop-up Air France-KLM, while each French citizen will only pay a subsidy €100. This is a poor deal for the “trading nation”, which likes to lecture other EU countries about fiscal rules but has no problem breaking these rules when it comes to subsidising KLM. This Dutch government subsidy is also bad news for competition and consumer interests as it will further delay the necessary reforms at the bloated Air France-KLM. For this €200 KLM subsidy, every Dutch man, woman and child could buy 5 flights with Ryanair, instead of paying for the failure and inefficiency at Air France-KLM.
We call on the European Commission to block this subsidy doping to KLM, which will further reduce competition and consumer choice in the Dutch and French markets”.
KLM has announced that it has secured financing for a total amount of EUR 3.4 billion.
COVID-19 has caused aviation to virtually come to a standstill worldwide in recent months. The pandemic has an unprecedented impact on KLM Group’s activities. In order to cope with this difficult period and to secure the future of the company, KLM has already taken a large number of measures to maintain liquidity shortly after the outbreak. Nevertheless, KLM needs additional financing in the coming period. This has been the subject of intensive discussions with the Dutch state and banks in recent months.
“Due to COVID-19 KLM is currently in an unprecedented crisis. The financing package is necessary to secure the long and difficult road of recovery in the coming period. This is a very important step and I express my gratitude on behalf of all KLM colleagues to the Dutch state and the banks for their confidence in our organisation and our future. With the financing package, KLM can continue to fulfil its important social role in economic recovery and sustainability. In the coming period, we will be working on the restoration of the route network and, on the other hand, on the development of the restructuring plan and the far-reaching conditions that have been imposed on the package.”
KLM CEO Pieter Elbers
The financing ensures that KLM can continue its activities and that the company’s position is strengthened towards the future. The conditions imposed by the Dutch State on the financing package relate to the entire KLM Group and include terms of employment of all KLM Group employees, the variable remuneration of management and top management, restructuring, dividend, governance, network quality, sustainability and liveability.
After careful discussions with both the Dutch state and banks, KLM has agreed on the structure of a financing package to ensure liquidity. The financing package and the conditions under which this package is provided by the Dutch state are subject to parliamentary approval in the Netherlands. The financing package should also be approved by the European Commission under the Temporary Framework for State aid measures introduced in the context of COVID-19.
Once this approval has been obtained, KLM will consult with trade unions to work out and detail together the conditions that the government imposes on the employment conditions of KLM employees.
The financing package consists of:
A 90% State guaranteed revolving credit facility of EUR 2.4 billion with a maturity of 5 years. The facility is granted by 11 banks, of which three Dutch banks and eight foreign banks.
A direct State loan of EUR 1 billion with a maturity of 5.5 years. The loan, provided by the Dutch State, will be subordinated to the revolving credit facility.
Following the completion of the parliamentary process, the first EUR 665 million drawing under the new revolving credit facility will be used to repay and terminate the existing revolving credit facility drawn on 19 March 2020. At that time, KLM will also withdraw a pro rata amount (EUR 277 million) from the direct State loan. Follow-up withdrawals under both the revolving credit facility and the direct State loan are only possible if certain conditions imposed by the State are met.
KLM will therefore draw up a restructuring plan that meets these conditions and determines the path for post-COVID-19 recovery. The plan also aims to review KLM’s current activities and adapt KLM to the changed economic reality.
Further information on the financing package
Revolving credit facility
A revolving credit facility of EUR 2.4 billion, granted by 11 banks, of which three Dutch banks and eight international banks.
The main features include:
90% guarantee granted by the Dutch state
Maturity of 5 years
Coupon at an annual rate equal to EURIBOR (floored at zero) plus a margin of 1.35%
A cost of guarantee granted by the Dutch state equal to 0.50% in year 1, 1.00% in year 2 and 3, and 2.00% after year 3
Direct state loan
A direct term loan of EUR 1.0 billion, granted by the Dutch state to KLM.
The main features include:
Maturity of 5.5 years
Coupon payable annually at a rate equal to EURIBOR 12 months (floored at zero) plus a margin of 6.25% for year 1, 6.75% for year 2 and 3, and 7.75% for year 4 and 5
Subordination to the new revolving credit facility
The revolving credit facility and the direct loan will be drawn on a pro rata basis. KLM’s first drawing under the new revolving credit facility will be used to repay and terminate the existing revolving credit facility drawn on 19 March 2020 for an amount of 665 million euros. At that time, KLM will also withdraw a pro rata amount from the direct State loan. Follow-up withdrawals under both the revolving credit facility and the direct State loan are only possible if certain conditions imposed by the State are met.
The syndicated revolving credit facility was coordinated by the three Dutch banks: ABN, ING and Rabobank. KLM received financial advice from Rabobank and legal advice from Allen & Overy LLP.
KLM Royal Dutch Airlines has made this announcement:
KLM is gradually and carefully restarting its network. In July, KLM operates 5,000 European flights. The forecast for August is 11,000. Intercontinental numbers are around 1,900 in July and 2,100 in August. At the moment, about half of the intercontinental flights are cargo-only. KLM hopes that – if worldwide travel restrictions are relaxed – an increasing number of intercontinental flights will be allowed to carry passengers again from July onwards.
The number of flights shows considerable growth compared to April, when KLM’s flight operations came to a virtual standstill as a result of the coronavirus crisis. KLM operated 1,116 flights within Europe and 612 intercontinental flights in April.
The recovery has therefore started cautiously, but the level of 2019 is far from being approached. In the months of July and August last year, KLM operated a total of some 22,000 flights. Moreover, the occupancy rate lags behind the record year of 2019.
Number of destinations: as much choice as possible for the customer
The number of destinations shows a slightly different picture. KLM has opted to restart as many destinations as possible first in order to offer customers a wide choice and then to increase frequencies and capacity.
This means that in July around 80 percent of the normal number of European destinations and around 75 percent of intercontinental destinations will be offered. In August this will be around 95 percent and 80 percent respectively.
It should be noted that, here too, about half of intercontinental flights currently only carry cargo and therefore no passengers. When international travel restrictions are relaxed, KLM will of course start carrying passengers to these destinations again.
KLM on May 27 started taking part in a trial at Schiphol to test sustainable ways to taxi aircraft. The trial is being carried out with a Taxibot. This is a hybrid towing vehicle which, unlike the normal pushback trucks, is licenced to tow full aircraft to near the start of the runway, without the aircraft having to start its engines. This is expected to reduce fuel consumption during taxiing by 50% to 85%. Schiphol Airport has made the Taxibot available to KLM, Transavia and Corendon to enable them to carry out joint research into more sustainable ways to taxi.
During the test, an empty KLM Boeing 737 was towed to the runway by the Taxibot. “It’s important to find out how far we can cut CO2 emissions by using the Taxibot,” explained KLM’s project manager, Jeroen Jaartsveld. “We’d also like to know how long it takes to taxi with the Taxibot, what effect this has on aircraft engine maintenance, and how we might introduce sustainable taxiing with Taxibots on a large scale into Schiphol’s daily operations.”
KLM’s sustainability initiative, Fly Responsibly, launched last year, included a commitment to reducing carbon emissions caused by taxiing. This will contribute to KLM’s ambition to cut its fleet’s total carbon emissions by 15% compared to 2005.
Large wide body airliners (like the Airbus A380 and Boeing 747) have been hard to fill for airlines since the COVID-19 pandemic exploded around the world this spring. Many airlines have parked their Jumbos and some have moved up the planned retirement dates of the Boeing 747-400.
If you want to fly on the passenger type you better hurry. Other than governments and cargo operators, finding a passenger Boeing 747-400 flight is a challenge right now.
Some aircraft in storage will probably become active again when the passenger demand dictates the use of large wide body aircraft again. If the demand does not come back quickly it will probably mean the end of those aircraft in storage.
Above Photos: Boeing.
Below is the current situation based on the latest information for passenger airlines (corrections and additions are always welcome) (subject to change depending on returning traffic):
Air Atlanta Icelandic – The charter and ACMI specialist airline has five passenger 747-400s. Three are currently stored and two are operating on ACMI assignments.
Above Copyright Photo: Air Atlanta Icelandic Boeing 747-412 TF-AMI (msn 27066) LGW (Antony J. Best). Image: 928104.
Air China – Two 747-400s are operational (B-2445 and B-2447) but they stay mostly in China these days. Another aircraft (B-2472) is operated for the government. Air China also continues to operate the newer 747-800.
Above Copyright Photo: Air China Boeing 747-4J6 B-2445 (msn 25882) JFK (Ken Petersen). Image: 902765.
Asiana Airlines – Only one 747-400 passenger aircraft (HL7428) is active these days so the type is probably ready to be retired this year.
Above Copyright Photo: Asiana Airlines Boeing 747-48E HL7428 (msn 28552) LAX (Michael B. Ing). Image: 910887.
Atlas Air – The charter and ACMI specialist airline currently has three active passenger 747-400s (N464MC, N465MC and N480MC). Assuming charter demand continues this airline could be one of the last passenger operators.
Above Copyright Photo: Atlas Air Boeing 747-446 N465MC (msn 24784) LAX (Michael B. Ing). Image: 921869.
British Airways – The former largest 747-400 passenger operator has stored all 28 aircraft pending a return of passenger demand. For now, G-CIVO operated the last revenue flight (BA9116 LOS-LHR) on May 11, 2020.
Above Copyright Photo: British Airways Boeing 747-436 (Tails) LHR (Dave Glendinning). Image: 908409.
KLM Royal Dutch Airlines – As previously reported, PH-BFT operated the last regular revenue flight (KL686 MEX-AMS) on March 29, 2020. However the Jumbo was brought out of retirement to operate special medical cargo flights (along with PH-BFV and PH-BFW) during the pandemic. All 3 are expected to be re-retired again this year.
Above Copyright Photo: KLM Royal Dutch Airlines Boeing 747-406 PH-BFT (msn 28459) (100 Years) AMS (Ton Jochems). Image: 949485.
Lufthansa – The company was originally planning to retire the 747-400 fleet in 2025. That all changed with the pandemic. All 8 that remain operational are now in storage pending a return of passenger demand. D-ABVX operated the last 747-400 passenger revenue flight (LH637 RUH-FRA) on May 8, 2020.
Air India – Four 747-400s are parked and not likely to return. VT-ESO operated the last revenue flight (AI966 HYD-BOM) on March 15, 2020.
China Airlines – Four passenger 747-400s are in storage and are not likely to return. B-18215 operated the last revenue flight (CI916 HKG-TPE) on March 15, 2020.
Corsair International – The French carrier parked its three passenger Boeing 747-400s in March and they are not likely to return. F-GTUI operated the last revenue flight (S5 927 PTP-ORY) on March 26, 2020,
El Al Israel Airlines – 4X-ELC operated the last passenger 747-400 revenue flight (LY1747 FCO-TLV) on November 3, 2019.
Iraqi Airways – The last passenger Boeing 747-400 (YI-ASA) operated the last revenue flight (IA3114, MED-BGW) on February 2, 2020.
Korean Air – HL7402 operated the last 747-400 passenger revenue flight (KE630 DPS-ICN) on February 29, 2020. Korean Air continues to operate the newer 747-800.
Mahan Air – The Iranian airline was recently again operating EP-MNB (February 2020) but it appears to be no longer flying, probably due to the embargo.
QANTAS Airways – The flag carrier decided to early retire the type due to a much lower demand. VH-OEE operated the last revenue flight (QF28 SCL-SYD) on March 29, 2020.
Thai Airways International – The flag carrier is in reorganization and is cutting costs and reducing aircraft types. HS-TGA operated the last 747-400 revenue flight (TG476 SYD-BKK) on March 26, 2020.
Virgin Atlantic Airways – G-VROS operated the last revenue flight (VS608 LAX-LHR) on March 31, 2020.
Poll. Who do you think will be the last Boeing 747-400 passenger airline operator?
As of today, Monday, May 11, 2020 wearing facial protection during boarding and on board is mandatory for KLM passengers. Passengers must ensure that they carry the required facial protection with them. Cabin crew will of course also wear facial protection.
Facial protection refers to non-medical face masks and to surgical face masks. The mask has to be large enough to cover the wearer’s entire nose and mouth.
For the time being, this measure applies until August 31, 2020. Passengers who do not wear adequate facial protection/mouth masks may be refused boarding at the gate. Children under 10 years of age are excluded from the measure.
For airlines, flying during the coronavirus crisis means operating under exceptional circumstances. The current situation calls for a series of measures KLM is taking in order to safely and healthily carry out its operation for passengers and crew. The obligation to wear facial protection is part of this. Other measures include aircraft being cleaned more frequently and thoroughly and keeping contact moments between crew and passengers during the flight to a minimum. In addition, passengers from high-risk areas will have to fill in a health declaration to assess whether they are fit to fly.
The risk of contamination on board aircraft is low. Modern aircraft are equipped with High Efficiency Particulate Air (HEPA) filters, which provide clean, high-quality cabin air with a high degree of air circulation. The air is replaced every three minutes by the aircraft’s built-in air supply system. The air flow in the aircraft goes from top to bottom, which further reduces the chance of ‘horizontal’ transmission in the cabin. Moreover, the air flows quickly, which is not conducive to the dispersion of droplets. Furthermore, the passengers all sit with their faces in the same direction, so there is little face-to-face interaction, and the seats form a barrier to the transmission forward or backward in the cabin.
Air France-KLM Group issued this report on the first quarter 2020:
Operating result at -815 million euros, strongly impacted by the Covid-19 crisis
A strong performance at the start of the year with passenger unit revenue up +0.8% end of February 2020. March 2020 however was strongly impacted by the expansion of the virus and consequential globally imposed travel restrictions to counter the spread of the Covid-19 virus. This influenced negatively the first quarter 2020 results:
Revenue at 5,020 million euros, down 922 million compared to last year
Unit cost at constant currency and fuel reduced by 1.6% end of February 2020, and then up 3.5%
end of March 2020
Operating result at -815 million euros, down 529 million euros compared to last year, entirely
caused by March 2020 with an operating result at -560 million euros1
Net income at -1,801 million euros, including Covid-19 related over hedging -455 million euros,
release of deferred tax assets -173 million euros and impairment of Boeing 747 aircraft -21 million
Net debt/EBITDA ratio at 1.8x, compared to 1.5x at the end of 2019
RAPID RESPONSE TO THE COVID-19 OUTBREAK
Implementation of the highest sanitary safety standards for frontline operation staff, crew and customers to counter virus transmission risks. The Group operated special flights for repatriation of citizens, setup of an “air bridge” fore essential medical supplies, in close cooperation with the French and Dutch governments and is maintaining the essential links with territories
Swift adjustments in network and capacity, March 2020 capacity down 35% and around 95% of planned capacity to be suspended for the second quarter 2020
Quick and effective cash protection measures implemented, costs reduced by 500 million euros on 2020, Capex reduced to 2.4 billion euros for 2020 and positive impact of partial activity implementation and crew variable pay reduction estimated at 350 million euros per month in the second quarter 2020
Liquidity injections of 7 billion euros benefiting to Air France through a bank loan guaranteed by the French state and a direct shareholder loan from the French state. Ongoing discussions with the Dutch state concerning KLM support
As an integral part of the financing packages the Group will build a new transformation plan to ensure economic and financial sustainability over the medium and long term with integration of new ambitious environmental goals. This new plan will be communicated in summer 2020.
High level of uncertainty on the duration of the Covid-19 crisis and impact on the macro-economic environment. The Group withdraws its earlier 2020 guidance elements.The Group now anticipates:
Progressive lifting of border restrictions in 2020, enabling a slow capacity resumption in Summer 2020, with capacity for the second and third quarter 2020 around respectively -95% and -80% compared to previous year
A prolonged negative impact on passenger demand, not expected to recover to pre-crisis levels before several years
A fleet repositioning including structural capacity reduction of at least -20% in 2021 compared to pre-crisis 2019 level
The Group foresees significantly negative EBITDA in full year 2020 and a significantly higher current operating income loss in the second quarter than in the first quarter 2020.
7 May 2020
Air France-KLM Group
Passenger Unit revenue per ASK2 (€ cts) Operating result (€m)
Net income – Group part (€m)
Adj. operating free cash flow (€m)
Net debt at end of period (€m)
18,111 5.80 -815 -1,801 -825 6,584
-20.1% -6.9% -529 -1,477 -1,066 437
1 2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
2 Passenger unit revenue is the aggregate of Passenger network and Transavia unit revenues, change at constant currency
The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 6 May 2020 to approve the financial statements for the first quarter 2020.
Benjamin Smith, Chief Executive Officer of the Air France-KLM Group, said: “The Air France-KLM Group had a promising start to the first quarter in line with the objectives of the strategic plan presented in November 2019. However, the acceleration of the Covid-19 crisis in March had a strong impact on the Group’s first quarter results. I would like to thank our teams for their exceptional mobilization in this unprecedented crisis. The Air France-KLM Group has adapted rapidly, by implementing health safety measures essential to our staff and customers, reducing our costs to preserve our liquidity, continuously adjusting our flight schedule, and the many repatriation flights and flights to transport medical equipment. Uncertainties remain regarding the evolution of Covid-19 and we must be cautious in the assumptions of recovery in the coming months. Nevertheless, the commitment to financial support of the French and Dutch governments to our Group, as well as that our banking partners participating in these schemes, is a strong testimony of their confidence in our ability to weather this crisis and rebuild. We are working on a renewal plan to ensure that the Air France-KLM Group regains its competitiveness in a deeply shaken world and reaffirms its leadership in the sustainable transition of air transport. These new orientations will be presented in the coming months.”
KLM Royal Dutch Airlines has made this announcement:
From May 4, 2020, KLM Royal Dutch Airlines will gradually begin restoring its European network. The airline will resume daily service to seven extra destinations, which were suspended in compliance with COVID-19-related travel restrictions. The wearing of face masks will be compulsory on all flights across the whole KLM network from May 11, 2020.
The strongly reduced European network is configured to connect with as many flights as possible in the intercontinental network. Routes will gradually be reopened, but may change weekly, depending on measures being taken by the authorities at the destinations.
KLM’s target for May is the resumption of 15% of its flights, compared to the period before the COVID-19 outbreak. A considerable number of the intercontinental flights are currently being operated on a cargo-only basis
Effective May 4, 2020, KLM will resume service – one daily flight, seven days a week – to the following destinations:
The flights will be operated with Embraer aircraft.
Compulsory face masks on board
Since the COVID-19 outbreak began, KLM has introduced many measures around screening and hygiene to protect customers and KLM staff, on board and at airports. KLM’s policy is based on national (RIVM) and international (WHO, IATA) guidelines, and complies with international law and regulations. In situations where social distancing cannot be guaranteed, the wearing of face masks will be recommended or made compulsory. Some destinations already require face masks to be worn on board flights.
Starting May 11, 2020, and simultaneous with the restoration of the KLM network, masks will be compulsory on board and during boarding. Passengers are responsible for providing their own face masks.
In view of the changing nature of regulations and legislation, until further notice, face masks will remain compulsory until August 31, 2020.
Today (April 30), KLM’s first passenger carrier departed, carrying cargo not only in its belly, but on the passenger seats and in the baggage bins of the aircraft cabin. KLM operated a B777-300 flight from Shanghai to Amsterdam, for the first time introducing the new cargo carrying concept. The load consisted mainly of urgent medical supplies, including hundreds of thousands of face masks and protective gowns to be used in combatting coronavirus. The new cargo carrying concept makes additional space available to ship personal protective equipment (PPE) such as this.
Around 500 packages of equipment can be carried in the cabin on each flight. If the trial proves successful, Beijing and Hong Kong will join Shanghai on the list of destinations for this new service. KLM will be deploying three Boeing 777s to operate Cargo-in-Cabin flights. The B747-400 combi flights currently re-entering service on these routes will soon be reconfigured to be similarly deployed. The packages will be bound to the passenger seats and stowed in the baggage bins.
Cargo-in-Cabin in practice
KLM’s new, albeit temporary cargo carrying concept was developed by a multidisciplinary team within a three-week timeframe. Executive Vice President Air France-KLM Cargo Adriaan den Heijer: “Developing and implementing this concept is a particularly complex necessity. Safety plays a pivotal role. Each and every package must be bound securely to the seat to ensure it remains in place throughout the flight. But practical matters have to be taken into account too, such as swiftly and safely loading the cabin cargo without damaging the interior. This process is especially labour intensive; current expectations are that this will take at least four hours.” To ensure that everything goes off smoothly, all such flights will be accompanied by a Cargo-in-Cabin Coordinator from KLM Cargo to maintain onsite loading supervision and monitor compliance with the new procedures.
“Cargo-in-Cabin significantly increases capacity. What we can now accommodate in the cabin equates to around six large pallets in the belly or 40% of the total cargo capacity,” explains Den Heijer, adding: “We can use the added space to our advantage, carrying more urgent medical supplies. Cargo-in-Cabin caters perfectly to the growing demand for such equipment.”
In its communication of April 9, 2020, the Air France-KLM Group stated that, given the major impact of the COVID-19 crisis, which will weigh heavily on its EBITDA, and despite the significant measures taken to preserve its liquidity, it predicted that in the absence of additional funding, a liquidity injection would be necessary in the third quarter of 2020.
The Air France-KLM Group, Air France and KLM therefore engaged in talks with the French and Dutch governments regarding the implementation of specific aid measures that would enable them to maintain their solvency.
Following several weeks of discussions with the French state and banking institutions, the Air France-KLM Group and Air France were able to finalize the various components of a support mechanism dedicated to Air France on which principle agreements are being finalised:
This support mechanism is comprised of:
A French state-backed loan of €4 billion granted by a syndicate of six banks to Air France-KLM and Air France. The French state is guaranteeing this loan up to 90%, and it has a maturity of 12 months, with two consecutive one-year extension options exercisable by Air France-KLM;
A direct shareholder’s loan of €3 billion from the French state to Air France-KLM with a maturity of four years, with two consecutive one-year extension options exercisable by Air France-KLM.
This aid mechanism, which remains subject to approval by the European Commission, will enable the Air France-KLM Group to provide Air France with the means necessary to meet its obligations by continuing its transformation in order to adapt in a sector that the global crisis will severely disrupt.
The Dutch state has also stated its intention to support the KLM Group. Discussions to finalize the aspects and conditions of an additional aid are ongoing.
The transformation plan, which will be finalized in the coming months, will include economic, financial and environmental commitments. It will notably involve a review of Air France’s activities looking to adapt them to the new market reality brought about by the crisis, and will have to strengthen its financial situation. This transformation will also contain an ambitious environmental roadmap to accelerate the Group’s sustainable transition.
Once this plan has been finalized and when better visibility on post-crisis air traffic levels becomes available, the Air France-KLM Board of Directors will consider increasing its equity capital subject to market conditions. At the latest, this could occur at the latest following the Board meeting scheduled to approve the financial statements for 2020.
In this context, the French state has indicated its intention to examine the conditions under which it might participate in such an operation to increase its capital.
“On behalf of the Air France-KLM Board of Directors, I would like to thank the French state and our banking partners for this aid, which will enable the Air France-KLM Group to overcome this unprecedented crisis,” said Anne-Marie Couderc, Chair of the Air France-KLM Board of Directors. “It is also the recognition of the strategic role our Group plays in the service of France, the Netherlands and our fellow citizens. The management and all employees of the Air France-KLM Group will undertake every effort to prove ourselves worthy of the trust placed in us.”
“On behalf of our Group and its employees, I would like to thank the French state and our banking partners for their support in ensuring the future of the Air France-KLM Group,” said Benjamin Smith, CEO of the Air France-KLM Group. “This aid, along with the Group’s action plan, will enable us to withstand this crisis and foresee the future of Air France-KLM with ambition and determination. We are a strong Group and we are united in face of this crisis. I would like to once again salute the exceptional commitment of our employees for their dedication to the repatriation of our fellow citizens, the transport of medical equipment, and maintaining the essential links with territories.”