Air France-KLM dreams of profit

Holland is again alone on Tuesday. During the shareholders’ meeting of the airline Air France-KLM in Paris, the Dutch state will once again vote against the million bonus for CEO Ben Smith. Probably the only opponent. Like previous years.

At the previous shareholders’ meeting in 2021, the Netherlands opposed a $ 2 million bonus to the Canadian CEO. Smith received the bonus on top of his salary of 900,000 euros. A € 3.3 million bonus is on the agenda for the meeting at a luxury hotel near Charles de Gaulle airport on Tuesday.

“This is not the time to award such bonuses to directors of companies receiving state aid,” Minister Kaag (Finance, D66) wrote to the House of Representatives on May 11 following questions from SP. The Ministry of Finance manages the Dutch interest in Air France-KLM.

“The crisis and its effects are still being felt,” Kaag said. “It takes a lot of taxpayers’ money to get companies and employees through this.” The minister says he can imagine the social dissatisfaction with the bonus. “The bonus for the CEO of Air France-KLM is incomprehensible and inappropriate.”

According to her, the Netherlands will vote against the bonus. “But we have to be realistic: the Netherlands owns 9.3 percent of the shares in Air France-KLM, and it is expected that a majority of shareholders will vote in favor.”

The other major shareholders are the French state (28.6 percent), China Eastern Airlines (9.6 percent) and Delta Air Lines (5.8 percent); 44 percent of the shares are listed. Some parts of the workforce own tufts of shares.

Slowly towards profit

After two tough corona years, shareholders are now expected to have little to complain about. Air France-KLM is recovering from the Covid-19 crisis. The French-Dutch aviation group is slowly returning to profitability. It may be in the second or third quarter of this year, the company reported in early May. In any case, ticket sales for the summer are up again.

For the second quarter, Air France-KLM expects the aircraft to be 80 to 85 percent full compared to 2019. In the third quarter, the summer months, the cabin factor is expected to increase to 85 to 90 percent by 2019. The subsidiary Transavia then expects, even above the level of 2019. Business traffic on the transatlantic routes, the most lucrative part of Air France-KLM, will account for around 70 percent of 2019.

One point of concern this summer, also in Paris, is the operational problems at Schiphol. Air France-KLM is afraid that there will be as much chaos at Amsterdam airport this summer as during the May holidays. Due to staff shortages at the land dealers and security guards as well as the wildcat strike in KLM’s baggage department, travelers suffered severe delays and cancellations.

KLM canceled dozens of flights in May to help reduce the crowd at Schiphol. “But we will not do it again,” KLM President Pieter Elbers said in mid-May during a visit to the Airbus plant in Hamburg, where an order for 100 new aircraft was confirmed. “Summer is just the period where we have to make the money,” says Elbers.

Transavia also announced on Friday that they will have to cancel flights in the near future due to the “irregular” labor market. That would be dozens of flights. Shareholders can complain in Paris on Tuesday about the negative equity in Air France-KLM. Debt is still higher than assets. But Air France-KLM is also working on its financial health here. Thanks to increased ticket sales, the group was able to reduce its debt by 600 million euros to 7.7 billion euros in the first quarter.

KLM already paid back 311 million euros from the emergency package from the Dutch state on 3 May. Of this, 630 million euros are still outstanding. KLM received loans and guarantees for 3.4 billion euros, but spent ‘only’ 941 million.

In addition, Air France-KLM announced two consecutive initiatives last week to reduce its debt. The French logistics group CMA-CGM is likely to take a 9 percent stake in Air France-KLM. The container shipping company, which earned billions during the closures, is taking over part of the shares from the French state. It will be seen on Tuesday whether it is indeed the 9 per cent.

On Friday, it was announced that the US private equity fund Apollo Global Management is investing 500 million euros in an Air France division involved in the management and maintenance of aircraft engines. The news agency Reuters quotes sources in the company as saying that Apollo will not get a shareholding in the airline group. Apollo is one of the largest venture capitalists in the world and has significant investments in aviation. For example, the subsidiary Merx Aviation is active in the leasing and administration of aircraft.

Step by step, Air France-KLM reduces its debt to the French and Dutch state. The group would rather stand on its own two feet again today than tomorrow. The lifeline from the start of the corona crisis – when KLM lost 3 million euros a day – has become a problem.

The conditions set by the French and Dutch governments, partly due to European rules, are now beginning to tighten. The group may not make major acquisitions as long as it receives state aid, has had to relinquish take-off and landing rights to receive aid and has to make significant cuts. State agent Jeroen Kremers, who oversees Dutch state aid, is considered a busy person at KLM.

Not yet emission-free

For many shareholders, it will feel like business as usual at Air France-KLM on Tuesday. But that, of course, is not entirely true. Smith is not getting his 3.3 million bonus because he has taken big steps to make Air France-KLM climate neutral. Like other airlines, the French-Dutch company still has many steps to take to be emission-free by 2050.

The company bought up to 100 new Airbus aircraft, which are more fuel-efficient and quieter than their predecessors – with an option for an additional 60 aircraft. KLM CEO Pieter Elbers, who is attending his last shareholders’ meeting of the group on Tuesday, signed the official order for the hundreds of A320neo / 321neo aircraft in mid-May.

But these new aircraft do not herald the contraction of aviation that is needed, according to climate experts, critical politicians and residents at Schiphol. In fact, Pieter Elbers sees the more efficient and quieter aircraft as a way for KLM to earn growth from the Cabinet. He will never experience that again. After thirty years with KLM, Elbers travels to India. From October 1, he will head the low-cost airline IndiGo, the country’s largest airline.

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