France, EU Reach Good Deal on Air France Aid, Le Maire Says

(Bloomberg) --

The French government and the European Commission have reached an agreement in principle on fresh financial support for Air France, which has been hurt by a drop in air travel since the start of the pandemic, Finance Minister Bruno Le Maire said on Sunday.

“It’s very good news for Air France, it’s very good news for the whole French aviation sector,” Le Maire said in an interview on LCI television. “It was a long and difficult negotiation, but I think we’ve reached a good agreement” with EU Competition Commissioner Margrethe Vestager.

The accord is “fair and proportionate,” he said, adding that the carrier would have to give up fewer than the 24 airport takeoff and landing slots at Paris-Orly airport wanted by the Commission in return for state support due to competition concerns.

France and the Netherlands own a combined 28% stake in Air France-KLM. The countries have been in talks for months on a funding plan after granting the carrier 10.4 billion euros ($12.2 billion) in direct loans and state-backed guarantees last year. The carrier, whose net debt ballooned to 11 billion euros at the end of 2020, has said it’s planning to raise equity and quasi-equity.

The airline’s board will meet on Monday to validate the principle of the accord, Le Maire said. He declined to give details of the amount of support or number of slots to be given up ahead of the meeting.

The French government is coming to Air France’s aid as it considers the carrier to be strategic for the country, with tens of thousands of jobs at stake, Le Maire said. However, the airline must improve competitiveness, reduce carbon emissions and return to profit, he added.

Le Maire said he expected Air France-KLM Chief Executive Officer Ben Smith to make suggestions, and that it didn’t necessarily mean cutting jobs.

“Taxpayers are making an effort,” Le Maire said. “Air France must make an effort for its part. That’s fair.”

Air France-KLM burnt through 2.1 billion euros in the final quarter of last year. The airline said in February it would operate at 40% of 2019 capacity in the first quarter and that losses would worsen. It is banking on the rollout of vaccines to underpin a recovery in the coming months.

(Updates with Le Maire comments starting in second paragraph.)

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