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Air France gets huge state aid package

Jo Harper
May 4, 2020

Lufthansa boss Carsten Spohr would like to receive state support, but does not want state management. His motivation becomes clearer when one takes a look at France.

Airbus A319 of Air France
Image: Reuters/Charles Platiau

The EU's competition watchdog on Monday approved French state aid of €7 billion ($7.66 billion) for Air France, consisting of €4 billion in state-guaranteed bank loans and €3 billion in loans directly from the state.

The Dutch government promised to contribute €2 billion to €4 billion to KLM. The French and Dutch governments each hold 14% of the Air France-KLM Group, which was created by a 2004 merger of the two national carriers.

The European Commission noted the importance of Air France for the French economy and the role it had played in repatriating stranded citizens and transporting medical supplies

.Several EU governments are planning to give billions of euros in aid to airlines. Germany's Lufthansa, the region's biggest carrier, is working on a rescue from Berlin, while Italy wants to take over bankrupt Alitalia. This aroused some concern among smaller member states.

While Germany makes up for about a quarter of the EU's GDP, it accounts for 52% of the total value of the emergency coronavirus state aid cleared so far, Commission data show. France and Italy share joint second place, each with 17% of the total.

The strings attached

The French aid, however, is not a blank check, says French Finance Minister Bruno Le Maire. "The aim of Air France must be to become the airline that guarantees the most sustainable protection of the planet," he noted.

State aid was linked to the following conditions:

Air France needs to become more profitable and competitive.

Air France is to reduce its CO2 emissions on long and medium-haul routes by 50% per passenger and kilometer by 2030; on flights within France until 2024.

By 2025, at least 2% of the fuel should come from a climate-neutral source.

Lufthansa plane at the airport
Lufthansa executives keep hoping that any state aid granted to the carrier will not result in too much interference in corporate decision-makingImage: picture-alliance/picturedesk/R. Jäger

Over the next few years, the long- and medium-haul fleet is to be renewed with a focus on reducing emissions, for example through the use of the new Airbus models A220 and A350, which emit up to 25% less CO2.

Le Maire also said he hope Air France "would remain a good customer for Airbus" in order to contribute to the survival of the ailing aircraft manufacturer.

Lufthansa concerned

Europe's biggest airline group, Lufthansa, said on May 3 it was close to a deal with the German government on state aid of up to €10 billion, according to the weekly Der Spiegel. Lufthansa said it was is losing €1 million per hour.

Lufthansa and its subsidiaries, which include Swiss and Austrian Airlines, have been grounded. In April, Chief Executive Carsten Spohr said the group was carrying less than 3,000 passengers daily compared with a prepandemic average of around 350,000.

Swiss authorities have already agreed to guarantee loans of up to €1.2 billion to Lufthansa, while Austrian Airlines has asked the government in Vienna for €767 million in state aid.

Der Spiegel reported that the German government is holding out for a stake of just over 25% in the group in exchange for financial aid, which would allow Berlin to block strategic decisions by Lufthansa management.

German news agency DPA reported last week that Lufthansa was mulling declaring insolvency instead of having the state intervene. The insolvency approach would see the company placed under the administration of a custodian and then allowed to restructure under the current management.

According to the cabin crew union Ufo, Spohr has said internally he would prefer to lead the company into this type of insolvency. In an interview with the newspaper Die Zeit, Spohr warned against having too much government influence in the company. Questions such as "if we fly to Osaka from Munich or from Zurich" should never be political, he said.