Air France’s Survival ‘Guaranteed’ by French After Dutch Warning

(Bloomberg) -- French Finance Minister Bruno Le Maire said he would guarantee the survival of Air France after his Dutch counterpart warned more cost cuts may be needed to get through the deep industry slump.

France will “do what is necessary to guarantee the survival of Air France,” Le Maire said Monday on France 2 television. “We’ve already done a lot, and we will continue.”

The French and Dutch government ministers were weighing in on plans by Air France-KLM to cut jobs, capacity and planes to respond to the sharp drop in demand caused by the Covid-19 pandemic. The countries, which own a combined 28% stake in the group, came to the rescue earlier this year with 10.4 billion euros ($12.3 billion) in loans and guarantees to its constituent carriers, Air France and KLM.

Asked whether the airline will get through the crisis, Dutch Finance Minister Wopke Hoekstra on Sunday said “that is not a given.”

Air France-KLM has to adjust its cost base to face the slump and will have to do even more should the pandemic last until the end of next year, he said. The Dutch arm has long been more profitable than Air France, leading to tensions within the group even before the pandemic.

Record Loss

Air France-KLM posted a record quarterly loss in July and is predicting “significantly negative” earnings in the second half. European travel picked up over the past months after governments relaxed lockdown measures, though the pace of recovery has been slowed by renewed outbreaks in several parts of the continent.

In a further sign of the political pressures on Air France-KLM Chief Executive Officer Ben Smith, French Transport Minister Jean-Baptiste Djebbari on Monday said the carrier “can do better” in coordinating a number of its activities including fleet management.

While he said planned job cuts are a “considerable adjustment” and in line with current thinking about where the industry is heading, he said airlines may have to change their business models in the medium-term due to over-reliance on corporate travel.

“No one really knows what traffic will look like at the start of 2021,” he said, noting that flights during the summer months was mainly tourism and not business trips.

©2020 Bloomberg L.P.