KLM and Schiphol: Market forces are at odds with air cycling – Joop


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© cc photo: Ellen26

How long can it be maintained that refueling a Boeing 737 at Schiphol provides less excise duty for the Dutch government than refueling a Fiat Panda by a private individual?

Market forces are a fairly simple mechanism. If demand is high, prices will rise. If there is little demand, prices fall. There must be very compelling reasons to disrupt this mechanism. For example, through government intervention. We know of such situations where systemic banks like ABN and SNS had to be rescued. But is there such a situation at KLM or Schiphol?

It seems unlikely. Air France KLM has found itself in serious difficulty, not because of the ‘black swan’ as Wopke Hoekstra Corona called it, but because of changing market conditions, an ‘eternal’ drip of government and a business model that is outdated, outdated by climate and the biodiversity crisis.

Schiphol should not be so crowded that services would have to be compromised if the market mechanism could do its job. If the salaries of security guards and ground staff were not so irresponsibly low, there would be sufficient staff. If the work environment was safe, there would be enough motivated staff.

If fares and fares for airline services were not so irresponsibly low, there would be sufficient capacity for a reasonable number of flights and Schiphol would no longer be a duty-free transfer station for duty-free refueling carriers and international travelers who make no contribution to the Dutch economy. their transfer, but conversely relatively a lot of inconvenience with landing and take-off of aircraft.

How long can it be maintained that refueling a Boeing 737 at Schiphol provides less excise duty for the Dutch government than refueling a Fiat Panda by a private individual?

In 2019, the government considered it necessary to increase government debt by 744 million to acquire 14% of the shares in AirFrance KLM.

This week it has become clear that around 500 million of the value of these shares has now evaporated. The announcement of a new share issue, in which the Dutch government wants to participate for 220 million, mainly to pay off French debt, was severely punished by the market: AirFrance KLM’s total stock market value fell to just over 1 billion. : the market capitalization of Easyjet is now more than 4x as high and Ryanair even 17x.

There must be very good reasons to continue to support a structurally loss-making operation, and there is none in the case of the French multinational AirFranceKLM.

In the past, the Swiss, Italian and Belgian governments decided to stop supporting Swiss Air, Alitalia and Sabena with state aid, and in all these cases, the withdrawal of this government has not led to an unexpected disaster.

Especially now that Air France KLM CEO Ben Smith receives a bonus of 2 million a year, despite our Finance Minister finding this ‘incomprehensible and inappropriate’, the Netherlands should no longer disrupt the market with illegal (fossil) state aid.

This week, Parliament is being asked to throw 220 million euros of taxpayers’ money into the air without knowing exactly what reasonable or useful purpose it serves.

Parliament should face false, KLM blue sentiments and take market signals seriously.

Shareholders have seen the AirFranceKLM share fall from 4.63 to 1.77 in the last 12 months (May 27, a negative return of 60%). After the terrible stock ‘crash’ on 23 May, a hard landing is impossible for the consortium, it’s time to fasten our seat belts.

Analysts from Deutsche Bank, Credit Suisse and Berenberg already advised to sell the shares this year. Destructive, analyst Niels Koerts from IEX calls the new question. “The airline is issuing 1.93 billion new shares at a price of € 1.17. This represents a 73% discount to Monday’s closing price.”

There are currently 642.6 million Air France-KLM shares outstanding and the number of outstanding shares is increasing by 300% as a result of this gigantic issue. “Such dilution only occurs in companies that are on the verge of bankruptcy,” says Koerts. The only investors he recommends participating in this offering are those who want to get rid of their money.

Apart from all the other arguments, the state of the Netherlands should not want to belong to this!

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