Fewer flights, lower prices and balance sheets big enough to land a jumbo jet on. A €2.3bn rights issue from Air France-KLM demonstrates that legacy national flag carriers remain as underpowered today as they were going into the pandemic.
Low-cost airlines infuriated by pandemic-era bailouts really had nothing to worry about.
Air France-KLM received one of the biggest rescues. This consisted of state loans and equity injections. The French and Dutch governments now hold almost two-fifths of the shares.
Both plan to put in fresh funds. France will swap some debt into equity. A roundabout deal structure will mean the French operating company no longer breaches laws prohibiting negative shareholders’ equity.
The rights issue is part of a larger capital-raising effort intended to plug a €4bn hole in the balance sheet. The company hopes it can once again make modest profits next year.
French shipping group CMA CGM will take up unsubscribed rights, including those of Delta Air Lines. In return, it will inject up to €400mn for up to 9 per cent of the post-rights share capital. At €1.17 each, the new shares are priced at a 40 per cent discount to the theoretical ex-rights price. Shareholders who do not take up their rights face dilution of 75 per cent.
The remaining hole in the balance sheet will be €1.2bn, accounting for a €500mn sale and leaseback last week. Hybrid notes should plug at least some of that. The goal is to cut group net debt-to-ebitda to 2-2.5 times by 2023 from around three times that at the end of last year.
Optimistic assumptions are required for Air France-KLM to reach that target while achieving an operating margin of 7 per cent by 2024. Transatlantic travel must continue to improve and the business will have to reduce staff costs by €1.4bn, 17 per cent of 2019 levels. Investors should avoid this business unless their motives include a strategic alliance or bolstering French and Dutch national pride.
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Source: https://www.ft.com/cms/s/eb5af16d-ef72-4250-8cdd-232d91dd8e9f,s01=1.html?ftcamp=traffic/partner/feed_headline/us_yahoo/auddev&yptr=yahoo