Caixin
Apr 08, 2021 08:29 PM
BUSINESS & TECH

China Eastern Pitches In to $4.75 Billion Rescue Plan for Air France-KLM

China Eastern Airlines Corp. Ltd., one of China’s “big four” state-owned carriers, will contribute to a rescue plan for debt-ridden Franco-Dutch airline Air France-KLM that will tighten ties between the companies that were forged under the Belt and Road Initiative.

China Eastern Airlines will participate in a 4 billion euros ($4.75 billion) French rescue plan “as part of further reinforcement of its strategic cooperation with the group,” a statement by Air France-KLM said Tuesday.

The plan aims to ease the carrier’s heavy debt load, which nearly doubled to 11.05 billion euros in 2020 as the Covid-19 pandemic almost brought international air transport to a standstill. It moved into the red during the period with a loss of 7.1 billion euros.

Under the rescue package, the French state will convert its 3 billion euros direct loan into a hybrid bonds instrument, and Air France-KLM will pursue a capital increase of up to 1 billion euros, according to the statement.

However, China Eastern Airlines, which currently holds an 8.8% share, will keep its stake strictly below 10% during the recapitalization, the statement said, and France will lock its holding below 30%. U.S. carrier Delta Airlines and the Dutch state — which have shares in the airline of 8.8% and 14%, respectively — will not participate in the plan.

Air France-KLM is the result of a 2004 merger between Air France and KLM. It signed a marketing agreement with China Eastern Airlines in 2017, under which the Chinese carrier bought a 10% stake for about 375 million euros. Subsequent issuing of new shares diluted the holding to the current 8.8%.

The deal was made when China’s Belt and Road Initiative brought new opportunities to the country’s air industry, the Shanghai-based carrier said at that time, adding that as a state-owned enterprise, it “placed the company’s development strategy under the national framework.”

“The commitment of our long-standing partner China Eastern Airlines to participate in the forthcoming capital increase also highlights a resolute confidence in the strengths and prospects of the Air France-KLM Group,” said Anne-Marie Couderc, company chairperson.

China Eastern Airlines received a capital injection of 31 billion yuan last year by introducing four new state-owned shareholders to ease the debt burden it incurred due to the spread of coronavirus.

It plans to pour 10.8 billion yuan, though private placement, into its listed arm (600115.SH), which recorded a loss of 11.8 billion yuan in 2020.

Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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