Air France KLM gets a €10 billion bailout from French and Dutch governments – what happens now in the UK?

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Whilst British Airways continues to claim it doesn’t want Government money – even though its sister airlines Iberia and Vueling have been bailed out by the Spanish Government – the two other largest European carriers are close to signing financial packages to prevent bankruptcy.

Lufthansa Group, which includes SWISS, Austrian and various other airlines is currently negotiating a €10 billion bailout.  It is also examining administration, which it may prefer to the Government terms of any bailout. (It may also, of course, be using its very public study as a negotiation tactic.)  We will look at this tomorrow.

Air France KLM, the smallest of the ‘big three’ European airline groups, has accepted a €10 billion bailout package by the French and Dutch governments.

The airline group will receive a €4 billion bank loan backed by the French Government as well as €3 billion in direct aid (ie free money).  The Dutch Government is assisting with an additional €2 billion to €4 billion.

Negotiations took slightly longer than expected because the French Government initially only offered to guarantee 70% of the commercial loans in the event that the airline went bust.  Early last week the Government increased this to 90%, a level which banks were willing to accept.

(Interestingly, the bailouts for Iberia and Vueling DID get done with a Government guarantee of ‘just’ 70%.  This is an interesting comparison of how the banking market sees the survival chances of the respective airlines.)

Neither Government is taking an additional equity stake in the airlines, although the two countries already control 28% between them.  The French Government is the airline’s largest shareholder.

French Finance Minister Bruno Le Maire did state that the bailout package for Air France would include ‘conditions of profitability and sustainability’. In a TV interview he stated that the airline would be required to become ‘the most environmentally friendly airline’, reducing it’s CO2 emissions in 2030 by half from 2005 levels (2024 for domestic sectors).

This isn’t just waffle.  Air France can no longer sell point-to-point tickets on domestic routes where the high speed TGV train alternative would be under 2.5 hours.  This is equivalent of British Airways being banned from flying between Manchester and Heathrow.  However, bizarrely, the airline CAN still operate these flights as long as passengers are connecting.

What should the UK Government do now?

The UK Government is finding itself boxed into a corner.  It was reported last week that it has hired Morgan Stanley to provide additional advice – on top of Rothschild and EY –  on how it should deal with the airline sector.

Air France KLM and Lufthansa should both have their futures secured within the next few days and will emerge from the crisis in a good position to compete.

IAG’s claim to not want Government funding has been shown up as a bluff following the bailouts of Iberia and Vueling.  It is now clear that British Airways was only refusing money so that it can justify firing ALL Eurofleet and Worldwide cabin crew members and rehiring a portion on substantially poorer contracts.  As an added benefit, if IAG can discourage Government help for the aviation sector it will force Virgin Atlantic into receivership.  British Airways can then request a bailout on grounds of national interest.

The Government needs to keep an eye on the cash, of course.  The US Government bailout for the aviation sector has got out of control.  As Politico reports:

“Merrill Field, a small airport in Alaska that largely serves small planes, would receive nearly $18 million, worth about nine years of its expenses.”

“John Murtha Johnstown-Cambria County Airport — no stranger to federal largess, considering the late lawmaker who is the airport’s namesake was known for bringing home pork — was set to receive over $5 million. It averaged about a dozen daily passenger boardings in 2018.”

Air France KLM gets a €10 billion bailout from French and Dutch governments

How to earn Flying Blue miles via UK credit cards

As a reminder, Air France and KLM do not have a UK Flying Blue credit card.  However, you can earn Flying Blue miles by converting Membership Rewards points earned from selected UK American Express cards.  These are:

American Express Preferred Rewards Gold – 10,000 Membership Rewards points sign-up bonus

The Platinum Card from American Express – 30,000 Membership Rewards points sign-up bonus

American Express Rewards credit card – 5,000 Membership Rewards points sign-up bonus

Membership Rewards points convert at 1:1 into Flying Blue miles.  The cards above all earn 1 Membership Rewards point per £1 spent on your card, which converts to 1 Flying Club mile.

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Comments

  1. Spaghetti Town says:

    The domestic flight thing is quite a tough restriction on AF, although how many routes will end up being effected?

    • Lloyd says:

      I suspect that the likes of Easyjet will jump on this, more domestic traffic for them!

    • Probably more than you think given the speed of the TGVs. Whether it would include Nice I don’t know.

      • Ralph says:

        The TGV Paris to Nice is very slow! It’s 3h30 Paris-Marseille and then a further 2h on to Nice as there are no proper TGV tracks between Marseille and Nice and the train makes numerous stops on that section!

      • Nick_C says:

        One of the many good things about the TGV is that it runs to CDG. Although Nice is nearly 6 hours so unaffected. But it makes sense to ban short domestic flights.

        Shame HS2, if it ever gets built, won’t be going to Heathrow.

        • Spaghetti Town says:

          i think that will be a big mistake we’ll regret in years to come.

        • Simon says:

          At old oak common HS2 joins with Crossrail

          • Spaghetti Town says:

            You could also argue the Heathrow express joins up with the Great Western mainline. Still not as a good as a direct link like HS2 should be like.

          • John says:

            The only potential flights the GWR replaces are Heathrow-Exeter and Heathrow-Cardiff

          • Spaghetti Town says:

            @ John. It would get traffic off our roads though and on to rail.

        • Charlieface says:

          The root cause of most of the HS2 debacle is that they only chose that route because it was near Heathrow and Old Oak Common. Now that they only rely on Crossrail for Heathrow, they may as well have taken the northerly route, i.e. similar to the West Coast ergo cheaper land and no Cotswolds NIMBYs

  2. Marcw says:

    The airline industry was the first industry hit by the covid-19 crisis. It will be the last one recovering. airlines need to adjust, whether we like it or not. That means there will be planes that will never fly again, other planes will be on long storage. As a consequence, there will be way too many staff around. Airlines must layoff staff; there’s no way around it. I’m pretty much convinced this applies to all other big businesses.

    If you don’t agree with BA position, vote with your money. Absolutely no one forces you to fly with BA. BA is a business that needs to adjust to the foreseeable future. ((All this reminded me of all the comments on HfP when BA introduced BoB on short and medium haul flights. You all said the same. You all carried in flying with BA. All very hypocritical)).

    • Anna says:

      Did anyone actually say they would stop flying with BA because of BoB, or just that they wouldn’t pay for it?

      • Interesting how they never bothered bringing BoB on CityFlyer despite plans to do so for several years?

        • Lady London says:

          Ever heard the expression
          “They know which side their bread’s buttered” ? They will restart LCY as soon as they can too.

      • marcw says:

        Just read the comments. headforpoints.com/2016/09/30/british-airways-buy-on-board-refund-compensation

        My comment was not focused to some individuals not flying BA. It was related to BA carrying more passengers yoy despite all the “enhancements” and general HfP feeling (won´t happen in 2020, but that´s a common denominator).

      • Mikeact says:

        Maybe not, but there were plenty of other reasons why many seemed to indicate that enough was enough and they would go elsewhere…a load of rubbish spoken. Not that that worries me in the slightest….we all have a choice in most areas….. I’m happy to stay with BA,as long as they get me there, safely.

      • Callum says:

        Yes. Lots and lots and lots and lots of people said they’d stop flying BA and, yet again, predicted it was the end of the airline.

    • Indeed may as well fly Ryanair instead – they’re about the same when it comes to how they treat their staff.

    • mvcvz says:

      I did vote with my money. I don’t purchase BoB. What’s hypocritical about that? Not that how I spend my money is any of your business anyway of course.

      • Briand says:

        Hypocritical ? Congratulations, one out of thousands.

      • Callum says:

        That absolutely isn’t “voting with your wallet” – in fact, it’s the exact opposite. You’re proving the point that customers don’t care about free snacks/drinks. You’d have to switch airline to vote with your wallet.

      • Heathrow Flyer says:

        If it’s none of our business…why bother to tell us anyway…?

    • We didn’t all say that. I didn’t care about the removal of a dubious ham roll and was relaxed about the loss of a gin and tonic at 7.30am…..

      • Lady London says:

        TBH I prefer Gregg’s to the poor quality of BoB M&S. I was willing to try it when BoB first started.

        I took a ham sandwich that was absolutely awful quality, ate it because I was starving and from not long after felt really unwell. I only just made it off the flight without chucking up. Never again.

    • John says:

      Honestly for me flights did get cheaper because of BOB, so I just never bought any of it.

    • Lady London says:

      You are correct on the huge manpower reductions needed at BA. It may even end up being a multiple of the current mooted 12,000.

      We just know that BA is still in a position to be decent to those made redundant. The UK statutory minimum is fundamentally indecent and reflects who this country is run for but that’s another discussion.

      Our issue is BA’s using the opportunity for unfair selection and the fact that they’ve opened by saying that despite the resources we all know they have, with further resources available to them, they are not behaving decently to those that have to go.

      For that I would echo @Doug M’s words “I want IAG ended” (I’d just settle for dismantling BA’s hold on slots at LHR

      • marcw says:

        Problem is, BA is a Business. Not a charity. I agree with you on the last point. But I´m not a IAG shareholder… I just use their services every now and again. If you don´t like how they treat their staff, you are free to fly with someone else. But honestly, which airline treats well their staff? Perhaps Delta is the exception to the rule. I think younger generations have accepted that there´s no guarantee that whenever you are permanently employed, it will remain so forever, even more so if someone else is happy to do your job for a lot less $$.

        Many big businesses will take the economic COVID-19 impact to transform their business… even very profitable ones. Maybe the UK voters realise that it´s time to take action and push for employee rights.

        • Dave says:

          Thatcher’s child. Let’s all race to bottom, as long as you’re okay marcw.

          • marcw says:

            The only way is to find a solution to the problem. Make employees protection way better, comparable to other EU countries, like Germany.

            As a researcher, we have by far the worse working conditions: absolutely ZERO job security, shitty pays, and very tough job requirements. And you need to be flexible, e.g. including switching countries, continents (to some that´s an advantage, but to others, it´s a headache).

          • Lady London says:

            @Shoestring what you’re talking about is called Universal Credit. It was invented a few years ago by civil servants ( the ones that don’t change when government changes) looking 25 or 30 years ahead, knowing most people won’t have jobs in the future.

            So they created a ‘social wage’ and called it Universal Credit. Everyone will eventually be forced onto it. In the very, very long term it will align with tax into a lifetime account for each individual.

            It’s currently just over £70 a week (not £175).

        • Actually virgin Atlantic treat us very well. I just hope we have jobs at the end of all this.

  3. Nick says:

    So here’s what I don’t understand. If AF/KL take money from governments to keep staff, and BA is right about the lack of demand, won’t it just leave AF/KL with a lot of expensive staff sitting idle, and therefore uncompetitive in the long run? Or aircraft flying around staffed but empty? Are the governments essentially just wasting money?

    • Nick_C says:

      State owned airlines were usually inefficient and lost money. Those days were meant to be over.

      • People that come out with stuff like this never seem to have a problem with the ME3 though or Finnair/Singapore (both majority state owned).

        • Nick_C says:

          You’re right. If the Finnish Government is losing Finnish Taxpayers’ money on their state airline I don’t have a problem with that. But I do have a problem if that state subsidy results in unfair competition for the private sector. And I don’t want to see my money spent propping up government vanity projects.

          • Well LH, AF, BA, etc were all at one time state owned monopolies they didn’t become leaders in their respective countries through the free market – there was not much, or even any, innovation or enterprise to get to that position. The state subsidies they’ve all had you could therefore say is unfair competition for the private sector airlines which were not old nationalised flag carriers… I respect your belief in the free market and so on, but it just doesn’t exist in aviation as it’s never going to be a level playing field and there will always be protectionism because most countries think an airline is strategically important for economic and/or vanity reasons.

          • Nick_C says:

            Perhaps the BA predecessor companies have a held a monopoly position at some point in the last 100 years, but not in my lifetime. Before BA was privatised, we had Starways, Caledonian, BUA, DAN Air, British Eagle, Laker, and possibly others that I have forgotten about. These carriers largely failed because of overregulation and unfair competition from state owned and subsidised airlines.

            My first long haul flights were with TWA and Continental. Private companies. I don’t think the US, the home of the free market, has ever had a state owned airline.

            Air travel has become cheap and affordable to the masses because of deregulation and privatisation. Europe’s most successful airlines have never been in the public sector.

            I believe some industries should be in the public sector (I think we should never have sold the airports) but air transport is not one of them.

          • Lady London says:

            HS2?

          • Doug M says:

            @Nick_C. The US may not have state owned airlines but how much Gov money has been poured into their carriers over the years? They have chapter 11 to protect them from from real bankruptcy. US airlines are an example of protectionism, not free market.

    • mark2 says:

      Good question!

    • insider says:

      I guess their conditions about being ‘profitable’ mean they will have to remove some staff regardless. However the strength of the unions and now the visuals of receiving the aid mean that it will be very hard for them to actually make any significant changes to make the business more efficient. I wouldn’t want to be in AF-KLM management’s shoes right now (well, any airline to be honest…)

  4. Alan says:

    It’s certainly interesting and a bit different, but I don’t see how their proposal is ‘bizarre’? It’s clearly to make people consider the alternative of the train whilst equally recognising the difficulty for connecting passengers who are trying to get to the hub. Seems quite logical from a non-London perspective 😉

    • BlueThroughCrimp says:

      Yep.
      Despite having a pass for the train, and I’ve done a transatlantic morning arrival then hoofed it to the Cross, I wouldn’t bother with the hassle of connecting from plane to train again in the UK, unless it involved an overnight stay.

      At least many European airports have InterCity stations and more than just expensive shuttles to the centre.

      Deutsche Bahn had the LH train down the Rhine, but I think they have a tie-up with ticketing rather than dedicated trains now. France going a similar way isn’t really a surprise, and shows how good domestic high speed rail is, if it’s done properly.

      • Andrew says:

        I’ve done it a few times.

        Arrive Transatlantic into Edinburgh, tram (or switch to train at EGY/EDP if good connection), then East Coast down to Kings Cross.

        Last time I did it, I managed to get onto the 07:30 from Waverley

        It is a bit tiring, but in normal years there can be a serious bargains from EDI when the Scottish Schools go back.

        • BlueThroughCrimp says:

          Heathrow to King’s Cross is a pain, and it’s then it’s another 6 hours on the train for me.
          A rail connection from Heathrow to Waverley would be ideal. Until then, it’s much easier waiting for a connection at Heathrow.

    • It seems reasonable from a national perspective – because domestic connecting passengers from regional cities are otherwise likely to be “lost” to foreign airlines.

  5. Cityboy says:

    EY, Rothschild, Morgan Stanley – sounds like the usual suspects doing very well out of the crisis in return for submitting some over-priced generic reports produced by graduates with little experience!

    • The Savage Squirrel says:

      Cut and paste can be lucrative!

      …although the most egregious example I’ve heard is an accountant who manages payroll charging a client 10% of each employee’s salary to submit to the Jobs Retention Scheme claim (so up to £250 per employee). [For reference, the portal is simple and surprisingly user-friendly for a government website, and submitting a claim for 10 employees took me about 15 minutes – and will probably ttake under 10 in future months now I’m familiar with the system.].
      I make that billing at approximately £10,000 per hour for some basic clerical work…

      • Rhys says:

        In general the GOV.UK digital portal is excellent and, from my experiences with other government websites, world-leading.

        • Charlieface says:

          I take it you’ve never filled in a tax credit change?

          • That’s a result of the complexity of the tax credits, not the website

          • Charlieface says:

            No it’s jolly not. For example when updating childcare, if you add a new provider they ask you for the amount you pay without making clear they want the total. Then you try and delete the old one and they ask you for the new total again, without making clear whether it includes the new provider that wasn’t added yet or not.
            Another one I found was on the Help to Save account, where you were still signed in even after clicking sign out.

    • Ianmac says:

      110% spot on !!
      In fact the aforementioned entities will probably utilise one or more of the consultancy ‘agencies’ (e.g. GLG, Coleman, Guidepoint, Alphasights etc) to actually school themselves in the facts of the subject so they can prepare said over-priced and generic reports (despite claiming that they have such in-house expertise in the first place to win the contracts ….).

    • mark2 says:

      It is the civil servants who should be blamed for signing the contract.

    • Better run, the Mongolian warrior will be after you 🙂

  6. Mikeact says:

    Did anybody notice this. Not strictly related to today’s topic, but thinking of UK connections….

    The administrators for the UK regional carrier Flybe are appealing to the government to retain the airline’s operating license. The company argued recently that the sale of the business would become unlikely if the license is revoked.

  7. Does Morgan Stanley, or any key players associated with it, make donations to the Conservative Party or have they done so in the past? Has any Conservative MP declared Morgan Stanley in the register of financial interests?

    • mark2 says:

      It is the same with IT projects.
      The civil service rules exclude all but the usual suspects and previous performance is not be taken into account.

      • TimM says:

        It is not just the civil service or Government. Even any part Government funded organisation has a set of shackles for ‘favoured providers’. When I was an academic I had my own research funding and PhD students. I had studied all the now-famous IBM research on productivity and wanted to buy two small sofas, a whiteboard and and a coffee machine to create a little social area in our lab to facilitate the free exchange of ideas, informally. I could have done it for under £500. However through the University’s ‘preferred’ (mandated) provider, it would have cost almost ten times as much. It never happened. The admin people insisted that part-Government funding tied their hands.

        Government IT procurement has been consistently catastrophic. Lazy, preferred providers being incapable of what they are contracted to do, projects abandoned or turned in years late and deficient and massively over-budget. It might help if they had computer science graduates, instead of PPE, in government and the civil service.

        A basic grasp of the software engineering lifecycle – e.g. a short course – should be compulsory for them all.

        • mark2 says:

          ‘It might help if they had computer science graduates’ or even someone who had had a non-Government job.

        • Dell OptiPlex 🙁 I remember I needed a new chair, I would have been happy with something under £100 but was forced to order something well over £300 with proper ergonomics etc, the back broke off in a matter of weeks. Often I’d just order stuff I wanted and face the consequences later. Same with travel, refused to use the corporate agent and got no end of agro but ultimately got to do things my way so it was worth it.

    • A quick look and the name that pops up is… Brown’s Darling!

    • Lady London says:

      Morgan Stanley are quite ubiquitous and there aren’t those sorts of issues with them. I personally rate them a nudge higher than GS.

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