Air France-KLM has entered exclusive talks with private equity firm Apollo Global Management for a €500 million ($529 million) capital injection for one of its engineering and maintenance units to help repay financial aid previously given by the French government.
Attempting to repay
Earlier in February, Air France-KLM had plans to raise €4 billion ($4.2 billion) to repay all forms of support it received during the pandemic’s onset. The airline had received approximately €10.4 billion in loans backed by France and the Netherlands, two of its most significant shareholders, back in 2020. However, the airline had not given any specific details about the fundraising, despite its clear need for cash as it mentioned:
“Air France-KLM intends to remain flexible on the transaction structures, as well as on the sequencing and the sizing of each instrument depending on market conditions.”
It would seem that market conditions are probably much better today. The airline has started quickly considering fundraising measures such as a capital increase and quasi-equity instruments to repay the French state, its primary shareholder. Thus, the airline’s talks with Apollo have begun underway.
As one of the biggest equity firms worldwide, Apollo is a high-growth alternative asset manager providing airlines and companies with innovative capital solutions. Together with Air France-KLM, Apollo will support the funding of the airline’s growth and achieve financial security. The airline’s market capitalization currently stands at €2.73 billion ($2.89 billion).
The airline’s market value has been just below €3 billion in the past few months. Photo: Air France
Proven track record
Assumably, Air France-KLM took a few months in between to find the most suitable and reliable equity firm. While Apollo might seem like an odd choice by just being one of the biggest firms worldwide, the equity firm has quite the track record for airlines. As a matter of fact, Apollo had helped an airline take off during the height of the pandemic last year.
The airline in question would be Sun Country Airlines, an ultra-low-cost carrier in Minneapolis. Founded in 1982 and begun flight operations in 1983, the airline was forced to declare bankruptcy after the September 11 2001 attacks and was again hurt by the recession of 2008. Eventually, Sun Country Airlines was bought by Apollo in 2018.
Since then, Apollo has flipped the business model of Sun Country Airlines into an ultra-low-cost model, worked on the flight operations group of Sun Country Airlines, and applied best practices. Over $200 million was invested in data, management expertise professionals, cargo and charter business, and exclusive contracts with sports teams.
Additionally, Apollo had helped Sun Country Airlines feasibly expand its fleet. When there was a collapse in fleet prices, Apollo ensured that the ultra-low-cost carrier locked in its future aircraft growth with desirable prices.
Fortunately, this deal with Apollo is not like the buy-over of Sun Country Airlines. Instead, the deal will be a purely financial operation, as confirmed by the airline:
“The proceeds of the transaction would enable Air France-KLM and Air France to partially redeem the French state perpetual bonds. The deal will not cause any operational or workforce-related changes.”
Other means of capital
Besides seeking help from an equity firm, Air France-KLM has also found another possible way of increasing capital through French shipping giant CMA CGM. As part of an air cargo partnership that is betting on the growing demand for flying goods worldwide, CMA CGM is set to take up to 9% of the airline.
While the percentage seems small, the stake is worth about €240 million ($252 million), making the shipping giant the fourth biggest shareholder in the airline. The newly-minted partnership will undoubtedly boost the financial position of Air-France KLM further, significantly since the shipping giant will help the French carrier to capitalize on the part of the business that was not very profitable before the pandemic, as it commented:
“The partnership with CMA CGM is expected to generate significant revenue synergies as we both have a strong ambition to invest and grow sustainably in the air freight market.”
Air France-KLM competes in the cargo market with European carriers, including Lufthansa airfreight specialist Cargolux and major Gulf and Asian carriers. Photo: Cargolux
The partnership between Air France-KLM and CMA CGM will cover a combined fleet of 10 full-freighter aircraft, including four at CMA CGM Air Cargo and six at Air France-KLM. It also covers the French carrier’s belly aircraft capacity. Together, both have 12 aircraft on order.
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