# Air France-KLM gets EU approval for $4.7 billion in state aid

As a result, the French government’s shareholding could rise to 30%, making it Air France-KLM’s single largest investor, French finance minister Bruno Le Maire told France Inter radio on Tuesday morning.

Read: Air France-KLM sees tough Q1 after hefty loss

Shares in Air France-KLM
AF,
-0.31%
were down 0.78% at €5.10 in midmorning trading in Paris on Tuesday.

The aid will only benefit the French arm of Air France-KLM
0LN7,
+1.40%,
according to the European Union. In return for the green light from Brussels, Air France-KLM has agreed to give up 18 daily takeoff and landing slots — about 4% of its slots — at Orly, Paris’s second-biggest airport after Charles de Gaulle.

The Dutch state, which owns a 14% stake in Air France-KLM, is continuing talks with the Commission, the EU’s executive arm, on a plan of its own for refinancing KLM, the airline said.

Air France-KLM Chief Executive Benjamin Smith said “these first recapitalization measures…will provide Air France-KLM with greater stability to move forward when recovery starts, as large-scale vaccination progresses around the world and borders reopen.”

The French government has agreed to find a “credible exit strategy” within 12 months and reduce its shareholding to precrisis levels by 2027. Dividends, share buy backs and management bonuses will all be banned until the bulk of the aid is repaid.

Read: Third COVID-19 wave could be the worst yet, Germany warns

The recapitalization package comes as France and other European countries are battling a surge in coronavirus disease infections that has led several member states to tighten their borders to contain the spread of COVID-19.

Air France-KLM posted a net loss of €7.1 billion for the whole of 2020, as its business, along with the rest of the sector, has been battered by the unprecedented collapse in global air travel during the COVID-19 pandemic. On Tuesday, the airline said it expected a loss of €1.3 billion in the first quarter.

Shareholder China Eastern Airlines
CEA,
+0.55%
has agreed to take part in the capital increase “as part of further reinforcement of strategical cooperation with the group,” Air France-KLM said, but said it would keep its stake “strictly below 10%.”

Delta Air Lines
DAL,
+2.91%,
which holds 8.8% of the share capital in Air France-KLM, won’t subscribe to the capital increase “due to the current framework of the CARES [Coronavirus Aid, Relief, and Economic Security] act” in the U.S., the carrier said.

Air France-KLM said additional measures to further strengthen the group’s capital are currently under consideration, with several steps to be taken before the 2022 annual general meeting.