The Ducth Government moved decisively on June 25th, 2020 to succour the Group KLM by securing it access to 3.4 billion euros ($3.8 billion) worth of loans. The airline whose finances have been depleted by the COVID19 crisis has also been enjoined by the Government to comply to measures that have been packaged with the deal. The agreement is expected to be approved by the Ducth Parliament.
The financing portion of the deal will grant the Group KLM access to a EUR 2.4 billion revolving credit facility from three Dutch and eight international banks. The State is to guarantee 90% of those loans whose maturity is 5 years. Annual coupon rate has been set to the EURIBOR (Euro Interbank Offered Rate) plus a margin of 1.35%. Cost of guarantee granted by the Dutch state has been set to 0.50% in year 1, 1.00% in year 2 and 3, and 2.00% after year 3.
Another EUR 1 billion will be made available to the Group under a 5.5 years maturity direct loan from the State. The direct loan has been subordinated to the above-mentioned revolving credit facility. Annual coupon rate on this transaction is set to the EURIBOR (Euro Interbank Offered Rate) 12 months rate plus a margin of 6.25% for year 1, 6.75% for year 2 and 3, and 7.75% for year 4 and 5.
With the package having been structured on a Pro rata basis as “Tranches”, once a government-mandated State Agent is appointed in order to oversee the use of funds, KLM will first have access to an amount of 665 million euros drawn from the new revolving credit facility. These funds will repay and terminate the existing revolving credit facility drawn on 19 March 2020. Simultanously, KLM is to withdraw a pro rata amount from the direct State loan.
Having risked tax-payers money by lending it to the KLM Group, the State Government has naturally been compelled to put in place some conditions that would have to be satisfied in order to release the funding.
In order for the deal to be approved by the Ducth Parliament, KLM would have to comply to a number of measures enounced by the Government.
In an effort to protect Schiphol’s Amsterdam airport status as a global hub contributing to economic stability, the Government is now requiring that in the event that Air France/KLM Group would ever decide to withdraw its main hub activity from the airport, the termination period be extended from nine months to five years.
Regarding cost savings, the Government estimates that a fifteen percent cost reduction must be achieved by both KLM and Air France, as part of a group-wide restructuring. Specifically, employees who earn more than three times the average wage are asked to take a pay cut of at least twenty percent. Furthermore bonuses and shareholders dividends payments will be halted during the restructuring period.
Other targets that have been set include a reduction of the number of night flights from 32,000 to 25,000 and the reduction of CO2 emissions of Dutch aviation by 50 percent per passenger kilometer in 2030.
On May 7th, 2020 the Group Air France/KLM already received a billion euro funding from France.