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Air France KLM gets a €10 billion Government bailout – 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.”

How to earn Flying Blue miles from UK credit cards

How to earn Flying Blue miles from UK credit cards (April 2024)

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 cards earn Membership Rewards points:

Membership Rewards points convert at 1:1 into Flying Blue miles which is an attractive rate.  The cards above all earn 1 Membership Rewards point per £1 spent on your card, which converts to 1 Flying Blue mile. The Gold card earns double points (2 per £1) on all flights you charge to it.

Category

Air France KLM and Flying Blue

Comments (164)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • BrightonReader says:
    3 May3 May 05:14

    I’m not sure what American airport bailouts have to do with BA and VS unless it it to show that governments need to be careful with taxpayer funded grants and / or loan guarantees.

    The US airports bailout is based on a now recognised as botched formula that rewarded airports with little or no debt and those two airports cited in the politico article were outliers. They have adjusted the formulas involved. Is the UK helping airports over and above the current 80% of salaries scheme?

    A more valid point to make would be the aid the US has given to the airlines. How do the US amounts and process compare to what the European airlines are getting in terms of grants and loans and how they repay any of it back.

    As an aside what BA are doing to its staff is making me very angry. Alex Cruz et al need to remember that passengers do have choices and many people will chose other airlines because of their underhanded dealings. Yeah I know me threatening to take my £5k spend elsewhere isn’t going to scare them but I need to do right by me.

    They don’t care about the national interest they only care about themselves and part of me says – despite having several friends who work for BA and are at risk as they are on WW contracts – the UK government should tell them to go away if or more likely when they come cap in hand.

    • GaryC says:
      3 May3 May 07:15

      You are correct, but many people don’t get it. They don’t get the fact that the operating expenses of a business need to be less than its revenue in the long term. They assume $1b+ of historic profits is bottomless, ignoring the fact that it won’t last long when revenue is zero. They see any bailout money to pay the third (actually over half at Heathrow) as “free”,
      ignoring the encumbrance on both the firm and taxpayer . When you have this mental model – revenue unimportant, cash pile bottomless, free money tap on demand – it’s actually pretty logical to assume that a management team shedding staff is inherently evil and simply out to screw people.

      • Mr(s) Entitled says:
        3 May3 May 07:44

        It is possible that they are simultaneously doing the right thing and screwing people. The two need not go hand in hand.

        We should all be in the habit of testing our mental thinking more often. Your own prejudice applied to your own decision making matrix is rarely more valid than another persons.

      • Edd M says:
        3 May3 May 08:34

        Because devaluing every role to the lowest possible pay level does not, paradoxically, create ‘shareholder value’.

        Employee churn, recruitment costs, sick leave and absences – all of these increase exponentially as pay drops and employees feel undervalued. The organisation loses knowledge, skills and talent of employees. It burns through candidates (which may no longer be in such a ready pool when UK leaves EU).

        I don’t think anyone should be cheering the creation of crap jobs – even including shareholders.

        • Bazza says:
          3 May3 May 11:33

          Are you saying the EU gives easy access to “cheap labour”?
          Outrageous!
          These are the high qualified doctors, nurses and radiographers who are running our NHS.

    • Yuff says:
      3 May3 May 08:04

      It wasn’t that long ago when BA tried to do something about the costs that the unions were quite happy to strike at the most inconvenient times, bank and school holidays to gain maximum leverage.
      Now the boot is on the other foot perhaps they should have been more conciliatory rather than making the company’s customers miserable and inconvenienced.

    • Mikeact says:
      3 May3 May 09:04

      And of course safety of passengers is the big one for me. But as for the rest, I think you’re right…paid up to three times more to pour a cup of coffee ?

    • Lady London says:
      4 May4 May 01:17

      Don’t know why BA bothered.

      All the decades-long deficits in UK pension schemes are just about to disappear. Around the 4-year mark give or take a year, we’ll have such inflation all those deficits will be gone.

      Most of the schemes will have to do one valuation, sooner than the full ‘benefit’ of the current Quantitative Easing (=posh wordfor printing money) will come through. In other words before inflation really gets going. But the following valuation,in 3-5 year window, will finally eliminate the deficits.

      And voila! employers such as BA will no longer have a pension plan that is in deficit (where they haven’t paid enough to pay the pensions they promised to employees). The companies look a lot, lot better to the markets without having had to put money into the pension plan. Inflation took care of it.

      The fact that pensioners will be destitute in following years as the money they receive also got quantitatively eased so they will find their fixed income pension progressively buys less and less necessities, will be irrelevant.

  • Orbitmic says:
    3 May3 May 05:41

    “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”

    Please tell me they mean a dozen planes and not LITERALLY a dozen people….!!

    • Rob says:
      3 May3 May 10:16

      No, they mean 12 people. It only handles very tiny planes.

  • Scallder says:
    3 May3 May 06:09

    “This is an interesting comparison of how the banking market sees the survival chances of the respective airlines.”

    Could it not also be the different size of the loans as well playing a factor? Happy with 70% under written at €1bn but banks would only loan €4bn by reducing their risk so needed to be underwritten to a level of 90%?

    • Mr(s) Entitled says:
      3 May3 May 07:10

      It could also be due to different strengths of negotiation, different demands on their capital, different risk weighted assets headroom, different social-economic principles in terms of aiding the country/government, different personal relationships, different favours owned post 2008 bailout or potentially a different view on the economic viability of the loan. To name but a few.

      Hard to draw just a single definitive conclusion.

  • vol says:
    3 May3 May 06:52

    ….So is this good news for holders of Virgin points, since they can be used here,..?

    • Callum says:
      3 May3 May 07:25

      If Flying Club went bust then the points would be worthless regardless of whether they’re currently on a flight booking or just sitting in your account. It therefore makes no sense to try and “save” them by making a flight booking.

      AF/KLM never get points, they get paid cash. If Flying Club goes bust before you fly then AF/KLM will get nothing, so they’ll most likely cancel your booking.

      I’m not sure when they actually get the money (in arrears after the flight is flown I’d assume?), but it’s not at the time of booking.

      • vol says:
        3 May3 May 08:03

        Thanks both for replies – Callum, re: worthlessness of Virgin Points if all does not go well, does the same theory hold true for transferring into Hilton Honors points? Would Hilton no longer honour the booking? (Excuse the pun)

        • TGLoyalty says:
          3 May3 May 08:20

          Depends what the payment terms are for the points ie 30 days/45 day after transfer. However, I suspect Hilton wouldn’t want the PR drama of cancelling points because they weren’t paid by flying club.

        • Callum says:
          3 May3 May 08:30

          Basically repeating what TGLoyalty said, it’s a lot harder for a company to remove points than to cancel a flight.

          The flight was booked via Virgin and hasn’t happened yet, so people are going to understand that the problem was caused by Virgin not paying for it. With points, the transaction has already fully completed, so you’re more likely to associate it with Hilton taking away something you already received.

  • Mr Matthew Quinton says:
    3 May3 May 06:59

    So do you think VA will get their loan? Sorry they are my fave airline so just want to be clear. What BA are doing is disgusting and needs to hit the BBC as I don’t think people understand any more than the title of “job cuts”

    • Spursdebs says:
      3 May3 May 07:34

      BA are disgusting but Branson isn’t? No one cares what the BBC says anymore, they are appalling for actual news.

      • Umba says:
        3 May3 May 08:15

        Debs, I’ve heard this statement so many times about the BBC and it always makes me curious.Where would you advise someone turn if they want an outlet that isn’t appalling for news? Is there a better channel, newspaper, radio channel or website?

        • Callum says:
          3 May3 May 08:24

          There isn’t a better channel. Like so many others, Debs cannot separate their feelings from facts.

          This is demonstrated when you challenge them for actual evidence of BBC bias – it’s normally just “their feeling” about the coverage (i.e. it doesn’t align with their political beliefs closely enough) or incredibly weak.

          I also love how the left wing constantly insists that the BBC is right wing, and the right wing constantly insists they’re left wing. A pretty good indicator that they’re neither!

          Though I’ll add the obvious caveat that, given they’re staffed by human beings and not robots, there will be occasional bias shown – just like with every single outlet on the planet.

          • James says:
            3 May3 May 09:44

            You are spot on. The beeb are accused by both left and right nutters of bias as they can’t handle hearing actual evidence that challenges the world view they’ve obtained by living in a social media bubble (often aided by a partisan newspaper).

            Good to see so many sensible people on here!

          • happeemonkee says:
            3 May3 May 12:33

            This is 100% spot on. I have politically left and right leaning friends and they are all convinced the BBC are biased.

          • Rob says:
            3 May3 May 13:34

            ‘Bias’ is a difficult concept which many people don’t understand properly. You are not trying to cover the entire spectrum of opinion. If there is an Asian businessman complaining of lack of Covid-19 support for his company, you don’t balance that out with a National Front member saying that he should ‘go back to where he came from’. The aim is to show both sides of a discussion WITHIN THE CURRENT WINDOW OF PUBLIC ACCEPTABILITY.

            For eg, it is not currently acceptable to say that someone who steals a Creme Egg should have their hand chopped off. If you were discussing penalties for shoplifters, you might have one person who says it is a waste of police time at one end of the spectrum and someone else who thinks that you should prosecute small crimes to the extent of the current law. You don’t put someone up who advocates hand removal. It is not ‘bias’ to refuse that person a platform.

            People who believe there is bias usually just have personal opinions which are outside what is currently seen as the ‘acceptable’ range of public opinion.

          • ChrisBCN says:
            3 May3 May 15:16

            EXACTLY right Rob, thanks for this comment.

        • Spursdebs says:
          3 May3 May 09:12

          Wow J sanctimonious or what … anyone says anything against your beloved virgin or Branson you can’t stand it and try and demean the poster.

        • Jessiefan says:
          3 May3 May 09:27

          5 News or Channel 4 much better imho. BBC too many smug faced joking presenters, more about them than anything else, just give me the news please and leave your ego at home.
          Oh and weather forecasters….don’t get me started, why do we even need these people any more?

          • Dezbez says:
            3 May3 May 09:42

            Agree – C4 News every time. Consistently high levels of challenging journalism. (Apart from the fact that Jon Snow seems to be getting a bit doddery! ☹️)

          • Mikeact says:
            3 May3 May 09:52

            You’re right the BBC seem to be neurotic about the weather …. how many more times do I need to know it’s going to rain..in 7 days time.

          • Nick_C says:
            3 May3 May 10:06

            “Oh and weather forecasters….don’t get me started, why do we even need these people any more?”

            I could watch Thomasz Schafernaker all day though!

          • Heathrow Flyer says:
            3 May3 May 10:13

            If you’re worried about presenter’s ego on the BBC…have you tried watch Tom Bradby?

        • Nick_C says:
          3 May3 May 10:03

          I’ve given up on both the BBC and Sky for news. They are both too parochial. All they are covering is Covid 19 in the UK and the Donald Trump comedy hour.

          And their coverage has become personal. I don’t care about lovely lollipop lady Edna Welthorpe dying of Covid 19 at the age of 72. I didn’t know her. Just give me the data.

          I was hearing about international events on line and from friends abroad.

          I’m now getting my TV news from Euro News and Al Jazeera. Just annoys me that I have to pay the BBC £150 a year in order to be able to watch Al Jazeera.

          • Brighton Belle says:
            3 May3 May 13:48

            How do you get Euro News in the Uk. It left Freeview and Freesat. I miss seeing the news from a European perspective.

          • Nick_C says:
            3 May3 May 15:32

            @Brighton Belle – I get Euro News through Virgin Media, but it’s also available on line https://www.euronews.com/live

        • Hassan M says:
          3 May3 May 10:19

          BBC is terrible for spouting leftish nonsense.
          E.g. Has articles that are supposed to make you feel bad for criminals. Then you read details and the time for the crime seems so lenient (16 months for group attacking a defenceless girl and recording it).

          • Callum says:
            4 May4 May 04:25

            If you regularly spout right wing nonsense, the BBC would indeed look like it’s being left wing.

        • J says:
          3 May3 May 10:44

          The BBC tick one key box as a news source – they are hated by both Momentum supporters and hard Brexiters. Any media which isn’t disliked by both, can’t be particularly trusted!

        • Jayne says:
          3 May3 May 12:46

          they’re commenting on your view of the BBC Debs. Nothing to do with Virgin/Branson.
          Jesus 🤦‍♀️

      • Reeferman says:
        3 May3 May 09:46

        I agree, clearly the BBC has a left-wing bias – their own people even admit so:
        https://biasedbbc.org/quotes-of-shame/

        Its recent Panorama programme was “full of left-wing activists”. There are lots of websites discussing this.

        My own monitoring of the headlines on the BBC website leading uptown the last GE showed a 75%+ bias in reporting in favour of the Labour party.

    • TGLoyalty says:
      3 May3 May 08:33

      I think it’s fair to say while BA need to look after their expenses they are using this situation to cut jobs unfairly and get rid of “thorns in the companies side” thorns that the company itself created.

      I don’t know BA’s performance review process but if these staff are as bad as people make out then their reviews/complaints history should show that and it’s that might be fair grounds to pick them out for CR if VR uptake is low.

      Perhaps they will actually use this to force the staff in the 2 legacy fleets to take MF jobs at their current pay, with some additional none £ benefits to make up for quality of life changes? That could be a way for both sides to walk away with something while not perfect for either.

      • Nick says:
        3 May3 May 10:13

        It won’t work, because WW customer scores are consistently miles ahead of MF ones.

    • Briand says:
      3 May3 May 10:45

      People like Mr M Q are quite happy to make rubbish comments but never come back to defend them…. idiots.

    • Jamie says:
      3 May3 May 12:29

      Hey pussycat. As you have all the traits of a sociopath, you’d never understand (accept) why.

  • Callum says:
    3 May3 May 07:16

    “However, bizarrely, the airline CAN still operate these flights as long as passengers are connecting.”

    It’s not really that bizarre. The train is a practical alternative to flying the short haul route, taking a train and then getting to the airport for the next flight often isn’t.

    While people who couldn’t care less about the environment like to pretend that everyone who does care is some kind of crazy ecowarrior, I’m sure you’ll find most people actually just want a more reasonable transition. There are so many areas in life where people are damaging the environment but a less damaging method wouldn’t be much/any less practical. Fix those first!

    • Chrisasaurus says:
      3 May3 May 08:45

      Callum this is the Internet, please stop being reasonable you’re making everyone else look bad.

      • Callum says:
        3 May3 May 15:49

        I wish that was true!

        Before the sheer boredom caused by the lockdown, I was on the verge of banning myself from reading any comments on any website. Seeing just how staggeringly ignorant and stupid the average person is is genuinely depressing (especially when you consider they are all online so coukd be verifying things before posting) and I think this is doing me more harm than good.

        Thankfully it’s not as bad here as on other websites (though it’s noticeably going downhill as the popularity increases), but ignorance is bliss!

        • the_real_a says:
          3 May3 May 15:59

          The average person does not comment on the internet.

          • Chrisasaurus says:
            3 May3 May 16:47

            I’m not sure how to take that!

          • Callum says:
            4 May4 May 04:29

            What makes you say that? It’s certainly not my experience (which I’m not saying proves anything – I HATE people who think their anecdotes mean anything at all!).

            Ten years ago I’d agree, now a significant number of the people I know in “real life”, who I’d consider average people, comment online. Not necessarily on sites like this of course – mainly social media.

    • P says:
      3 May3 May 09:33

      The way I read it was that, if the Airline was going to be flying the route anyway for connecting passengers, doesn’t it make sense to try to get a full plane by having commuting passengers as well.

      • Chrisasaurus says:
        3 May3 May 09:53

        Circular argument.

        If you’re allowing point to point pax because you were allegedly running the plane anyway, what do you do when the point to point pax make an otherwise loss making connecting flight commercially viable?

      • Callum says:
        3 May3 May 15:45

        Or, without point-to-point passengers, maybe they don’t need to operate the flight at all?

    • Luckyjim says:
      3 May3 May 09:34

      The bizarre part is the fact that short haul flights are often far cheaper than the equivalent train journey.

      • insider says:
        3 May3 May 11:23

        a better solution maybe to put a price floor on point-to-point, so that the train is always significantly cheaper, but means that they can at least sell some tickets. These flights will be hugely loss making otherwise (on their own, obviously they contribute hugely once you take into account the connection)

      • Callum says:
        3 May3 May 15:43

        You’re going to need to explain why that makes it bizarre. Again, it does the exact opposite in my eyes – if people are choosing the plane over the train because it’s cheaper, removing the option fixes the problem…

    • Chrish says:
      3 May3 May 12:08

      Yes Callum, this is the internet. your meant to write rubbish & give people laughs,
      no more serous stuff plz lol

      • Brighton Belle says:
        3 May3 May 13:51

        I would prefer it if comments were all moderated by video links to amusing kittens.

        • Chrisasaurus says:
          3 May3 May 16:49

          And the one of the dog bounding out of the car and jumping into a huge pile of leaves

          • Lady London says:
            3 May3 May 23:40

            You have too much time on your hands…both of you.

  • Briand says:
    3 May3 May 08:59

    Again should be written with an impartial view,which it’s not….yesterday somebody asked why Lufthansa was not getting coverage with their 10000 layoff proposal…answer. Because this is an English language blog and UK focused?
    Today, we’re happy to focus on the French and Dutch.

    • Lady London says:
      3 May3 May 23:09

      it’s not only expensive to make redundancies in DE it’s bureaucratic hassle as well. Same in France – not administratively easy.

      • Lady London says:
        3 May3 May 23:47

        par for the course I believe.
        Germany is really really hard to make people redundant in any ex-State owned enterprise. Many levels of impossibility/resistance/bureaucracy/cost.

        In the 2nd company I worked for like that there were two rounds of redundancies when performing UK units and people were made redundant because they couldn’t make people in jobs that no longer existed since years, redundant in Germany.

  • Derek Scott says:
    3 May3 May 09:10

    Alex Cruz just needs to tread carefully.. just look at the backlash Tim Martin received for the way he treated his JD Wetherspoon employees, and the resulting campaign to avoid his pubs and take business elsewhere. Whilst the aviation sector doesn’t have the breadth of alternative choice, the principle is the same.

    That said, by not being loyal to BA, it risks jobs for 40,000+ employees, not 12,000

    • Spursdebs says:
      3 May3 May 09:16

      Something similar happened at Tottenham, us fans were appalled but not surprised that Levy and Enric furloughed the staff and took government money. Glad to say that decision was revoked due to fan pressure.

      • J says:
        3 May3 May 10:51

        But Levy now has the excuse to cash in on Harry Kane and blame the fans for not accepting cost cutting. Don’t worry though, I’m sure Vinnie Janssen is keen on a return to fill the void 😉

    • Matty says:
      3 May3 May 09:19

      I suspect Spoons will be full when this is over. Likewise, I see a lot of people worrying about their BA status extensions over on FT.

    • Chrisasaurus says:
      3 May3 May 09:20

      Even then (and I’m doing my best to be apolitical here) the ‘backlash’ started at a period during which the pubs are all closed anyway, will have died away long before they’re fully open again and the people (talking about) boycotting the chain on the grounds of his views towards employee rights, are, I contend, not likely to have been amongst of the loyal patrons of a vocal Brexiteer.

      • Lady London says:
        3 May3 May 23:53

        The Byron backlash did have some effect though after the company shafted their own undocumented workers. It just became easier to choose somewhere else to eat. Byron definitely noticed.

    • Nick_C says:
      3 May3 May 10:22

      Sadly, most consumers don’t care about ethics. If they did, Amazon and Starbucks wouldn’t be operating in the UK.

    • Lady London says:
      3 May3 May 23:49

      It could well be more than 12000 in the end

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