Air France-KLM Uneasy With French Government’s ‘Good Airbus Customer’ Mandate For Coronavirus Aid

Air France-KLM may not like French government intervention requiring Air France be “a good Airbus customer.” But the group is possibly positioned to satisfy the mandate.

“There are a number of commitments that have been made by Air France,” Finance Minister Bruno Le Maire commented to French media after the airline received a €7 billion loan package from the government.

“Air France must continue to be a good Airbus customer, which is also currently in difficulty,” he said.

But Air France-KLM CEO Benjamin Smith wants commercially-led aircraft selection.

“We are operating as a regular listed business company,” he said after investors asked about Le Maire’s comments. “We make appropriate business decisions.” The French and Dutch governments each own about 14% of the group.

Le Maire noted Air France has large aircraft orders from Toulouse-headquartered Airbus.

“If we support Air France, it is also – and I do not hide it ­– to support Airbus,” Le Maire said, adding that the government could also “massively” support Airbus directly if needed.

But there is a nationality divide.

“All orders and options and purchase rights that are in place at Air France are and were with Airbus,” Smith said. Air France has outstanding orders for 60 Airbus A220s and 34 A350s, and one last Boeing BA 787-9.

Air France’s widebody fleet has been tilted towards Boeing with 77 aircraft versus 30 Airbus widebodies at its most recent full fleet update last November. But Air France’s short-haul fleet is 114 all-Airbus aircraft, excluding regional jets.

“On the KLM side of the business, all orders were in place with Boeing,” Smith said.

Alternatively, Air France-KLM at the group level could simplify the 787s out of Air France. “We can look to move those aircraft to KLM in the future,” Smith said. KLM already has 18 787s.

If KLM does not need all 10 of Air France’s 787s, Smith noted three of Air France’s 787s are on lease and could be returned to lessors.

Smith acknowledged to investors the government aid package has business conditions. Requirements about unit cost and productivity are “perfectly aligned with our business plan,” he said.

Air France’s unit costs at constant fuel and currency were down 2.9% across January and February before the coronavirus crisis impacted global airlines.

But the government’s environmental conditions will require Air France “accelerate” its previous goals.

The €7 billion loan to Air France comprises a €3 billion loan directly from the French government and then a €4 billion loan from banks but 90% guaranteed by the government.

 

Source: https://www.forbes.com/sites/willhorton1/2020/05/09/air-france-klm-uneasy-with-governments-good-airbus-customer-mandate-for-coronavirus-state-aid/#3ed5b5cb1669

 

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