KLM Secures €3.4 billion In COVID-19 Funding

In a statement issued Friday, Dutch flag-carrier KLM announced that it had secured €3.4 billion ($3.8 billion) in funding to see it through the COVID-19 crisis. The deal, reached following an agreement between the Dutch Government and France, comes with far-reaching conditions.

KLM 3.4 billion euro rescue package
The rescue deal reached on Thursday places a multitude of conditions on the carrier. Photo: Getty Images

Bank and state-loans

After weeks of tough negotiations over the final terms of the relief package, KLM has finally secured the much-needed state-guaranteed funding. Following a €7 billion ($7.86 billion) bailout of its partner carrier Air France, the Dutch national airline is set to receive about half that amount.

The financing package consists of a 90% state-guaranteed revolving credit facility of €2.4 billion with a maturity of five years. This is offered by a group of 11 banks, three of which are Dutch and eight of which are foreign.

The remaining €1 billion comes in the form of a direct state-loan. It has a maturity of 5.5 years and is subordinate to the revolving credit facility.

“The financing package is necessary to secure the long and difficult road of recovery in the coming period. This is a very important step and I express my gratitude on behalf of all KLM colleagues to the Dutch state and the banks for their confidence in our organisation and our future,” Pieter Elbers, CEO of KLM, said in the statement seen by Simple Flying.

KLM Secures €3.4 billion In COVID-19 Funding
The rescue package consists of state-backed commercial funding and direct loans. Photo: Getty Images

Non-voting seat on the board

“In the coming period, we will be working on the restoration of the route network and, on the other hand, on the development of the restructuring plan and the far-reaching conditions that have been imposed on the package,” Elbers continued.

Initially, the Dutch Government was requesting a voting seat on the KLM board. This did not sit well with France, who, just like the Netherlands, owns 14% of its national airline. It felt a Dutch voting seat would weaken its influence over the Air France-KLM group.

Thus, the agreement has settled for appointing a non-voting trustee to the board, to ensure that the bailout money is reserved solely for KLM, sources familiar with the matter told Reuters.

Operational and environmental demands

The restructuring plan will also include job cuts, frozen bonuses, and salary reductions of as much as a fifth for those earning over €110,000 per annum. Furthermore, it will entail the halting of dividends, Dutch Finance Minister Wopke Hoekstra said in a letter to Parliament obtained by Bloomberg.

KLM will also be required to cut its night flights to Schiphol by a fifth to lessen the noise impacting residents close to the airport. The carrier must also find ways to encourage train travel where applicable and decrease CO2 emissions by 50% per passenger by 2030.

KLM, Coronavirus Apology, Korea
The Dutch Government will appoint an observer to the KLM Board. Photo: KLM

Awaiting approval

The new financing package still needs to be approved by both the Dutch Parliament and the EU Commission under the Temporary Framework for State aid measures introduced in the context of COVID-19.

How much influence the state will exert over the Dutch branch of Air France-KLM in practice remains to be seen. It is most certainly interesting to see how the partnership, already strained throughout the last year, will unfold given the new circumstances.