How Aid Could Complicate The Air France-KLM Relationship

The Air-France-KLM Group has managed to secure crucial funding as it tries to survive through the global health crisis. However, with the two arms of the holding company relying on their respective governments for aid, their relationship could be getting more complicated.

Air France KLM shares getty images
Air France-KLM has a tough situation on its hands. Photo: Getty Images

National support

At the end of last week, Air France secured €7 billion in aid. This is split between a €4 billion state-backed loan, granted by a syndicate of six banks, and a €3 billion direct shareholder’s loan from the state.

Meanwhile, the government of the Netherlands shared that it would provide between €2 billion and €4 billion in financial support to KLM. The airline is satisfied with this amount, provided that air traffic is back to 80 percent by the end of 2021.

Luchtvaart Nieuws reports that officials at KLM’s office in Amstelveen are not convinced that Air France is willing to reduce costs amid the passenger downturn, especially since it is receiving a substantial rescue package. They also feel that the government now has greater power over the airline.

Air France-KLM
Is there a grey cloud over the future of Air France-KLM’s structure? Photo: Getty Images

These sources of funding can only be used to support operations conducted by each respective airline. Therefore, the two flag carriers of their countries are naturally being forced apart. Moreover, they are effectively becoming more nationalized with the way things are going.

Air France grounded planes
With the majority of its fleet grounded, Air France is glad that it has been able to secure crucial funding from the French state. Photo: Getty Images

Are they drifting apart?

The veteran airlines merged back in 2004, but in recent years, the connection between the two operators has deteriorated. This drift culminated in the struggle around the reappointment of KLM CEO Pieter Elbers at the beginning of last year.

KLM is reportedly frustrated that Air France is playing boss. It is becoming convinced that it might be better off if the head office of the holding company is scrapped and the two airlines limit their relationship.

KLM grounding
The mood was much brighter for KLM last year as it celebrated its 100th anniversary. Photo: Getty Images

Sensitive time

Nonetheless, both airlines have most of their aircraft sitting on the ground due to the inactivity. With both carriers in such vulnerable states, they are likely to wait before any drastic action is taken. There also may be subsequent aid operations in the form of shares. Air France-KLM will decide on this process later this year.

Altogether, the group will be hoping the suspensions don’t last longer than anticipated. If groundings don’t continue longer than expected, then the aid offered should be enough to cover costs.

Simple Flying reached out to Air France-KLM for more information about how government aid will impact the business. However, the group decided not to comment.

What are your thoughts on the relationship between Air France and KLM? Do you think they will be able to stick it out during this period? Let us know what you think of the situation in the comment section.