KLM today finalized its Covid-19 rescue package with the help of the Dutch government that consists of loans and guarantees.
The airline gets €1B directly from the government and an additional €2.4B government-guaranteed loans from Dutch banks for a total of €3.4B.
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Here’s the announcement from the airline:
Amstelveen – June 26th 2020 – KLM announces that it has secured financing for a total amount of EUR 3.4 billion.
COVID-19 has caused aviation to virtually come to a standstill worldwide in recent months. The pandemic has an unprecedented impact on KLM Group’s activities. In order to cope with this difficult period and to secure the future of the company, KLM has already taken a large number of measures to maintain liquidity shortly after the outbreak. Nevertheless, KLM needs additional financing in the coming period. This has been the subject of intensive discussions with the Dutch state and banks in recent months.
Due to COVID-19 KLM is currently in an unprecedented crisis. 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. With the financing package, KLM can continue to fulfil its important social role in economic recovery and sustainability. 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.
KLM CEO Pieter Elbers
The financing ensures that KLM can continue its activities and that the company’s position is strengthened towards the future. The conditions imposed by the Dutch State on the financing package relate to the entire KLM Group and include terms of employment of all KLM Group employees, the variable remuneration of management and top management, restructuring, dividend, governance, network quality, sustainability and liveability.
After careful discussions with both the Dutch state and banks, KLM has agreed on the structure of a financing package to ensure liquidity. The financing package and the conditions under which this package is provided by the Dutch state are subject to parliamentary approval in the Netherlands. The financing package should also be approved by the European Commission under the Temporary Framework for State aid measures introduced in the context of COVID-19.
Once this approval has been obtained, KLM will consult with trade unions to work out and detail together the conditions that the government imposes on the employment conditions of KLM employees.
The financing package consists of:
- A 90% State guaranteed revolving credit facility of EUR 2.4 billion with a maturity of 5 years. The facility is granted by 11 banks, of which three Dutch banks and eight foreign banks.
- A direct State loan of EUR 1 billion with a maturity of 5.5 years. The loan, provided by the Dutch State, will be subordinated to the revolving credit facility.
Following the completion of the parliamentary process, the first EUR 665 million drawing under the new revolving credit facility will be used to repay and terminate the existing revolving credit facility drawn on 19 March 2020. At that time, KLM will also withdraw a pro rata amount (EUR 277 million) from the direct State loan. Follow-up withdrawals under both the revolving credit facility and the direct State loan are only possible if certain conditions imposed by the State are met.
KLM will therefore draw up a restructuring plan that meets these conditions and determines the path for post-COVID-19 recovery. The plan also aims to review KLM’s current activities and adapt KLM to the changed economic reality.
Not sure how all these airlines can operate under heavy debt burden, or is the plan only to roll over the debt indefinitely? Probably less palatable for the politicians, but the most transparent way forward, and perhaps inevitable later, would have been simply to recapitalize them.
KLM is going to cut the salaries of its employees and has committed to fewer night flights from Schiphol airport.
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