Air France-KLM issues 300 million convertible bonds – 11/16/2022 at 10:20 am

(AOF) – Air France-KLM is launching an offer of senior subordinated bonds with indefinite maturity, convertible into new shares and/or exchangeable for existing shares for a nominal value of approximately 300 million euros. The net proceeds of the placement are intended to go entirely towards the redemption of super subordinated bonds held by the French state, issued in April 2021. CMA CGM has indicated its intention to participate in the placement in proportion to its current 9% stake.

The bonds will be issued at par and will have a nominal value of €100,000 and will be convertible and/or exchangeable into new and/or existing Air France-KL shares. The conversion/exchange price of the bonds will be set at a premium between 20% and 25% compared to the reference price.

From the date of issue and up to and including November 23, 2025, the bonds will accrue interest at an annual nominal rate of between 5.75% and 6.50% payable quarterly in arrears on November 23, February 23, May 23 and August 23 of each year, and for the first time on February 23, 2023.

This transaction marks a new milestone in the airline’s efforts to accelerate the repayment of French state aid, continue to support equity strengthening and help optimize financial costs.

AOF – FIND OUT MORE

has

– European number 1 in air transport, born in 2000 from the merger between Air France, created in 1933, and the Dutch KLM, founded in 1019;

– The turnover of 14.3 billion euros reached 86% in passenger and freight transport, then maintenance for 7% and the subsidiary Transavia for 7%;

– Business model based on optimizing the use of the fleet, improving operational performance, simplifying structures and connectivity on the one hand, growing the short- and medium-haul network and developing long-haul through alliances (alliance of 19 airlines in SkyTeam) and partnerships;

– Capital held 28.6% by the French State, 9.3% by the Dutch State, 9% by CMA-CGM, 4.7% by China Airlines and 2.5% by Delta Airlines, Anne-Marie Couderc chairs the 19-member board of directors, with Benjamin Smith as chief executive officer;

– Strengthening of the balance sheet: at the end of September, equity still negative but improved by 4 billion in 2022, net debt reduced to 6 billion, liquidity to 12.3 billion.

Challenges

– Transformation strategy through organization, cost reduction, fleet management and transfer to Transavia of the French domestic network outside Marseille, Nice and Toulouse:

– debt leverage reduced to 3-3.5% in 2023,

– operating margin from 7 to 8% in 2024;

– Innovation strategy:

– at the service of the attentive relationship with the customer (massive use of vocal assistance techniques, artificial intelligence, blockchain and augmented reality),

– towards clean aviation, support for sustainable fuels, electric taxiing for ground towing, atmosphere monitoring, etc.;

– Environmental strategy aimed at reducing CO2 emissions by 50% (vs 2005):

– Climate Plan with 6 priorities including fleet modernization (€2.5 billion invested in aircraft that consume 25% less fuel), sustainable fuels or SAF (3% in 2023, 10% in 2030), compensation plan with the CORSIA system;

– fight against noise pollution,

– Recycle 60% of hazardous waste in 2020 and reduce residual waste by half by 2030 and commitment to biodiversity;

– Group capacity at 89% of 2019 level and load factor at 88%, close to 2019 level (90%);

– Increased kerosene prices offset by cost savings;

– Increase in the unit revenue per pass, of 7.3 euros at the end of September.

Challenges

– Uncertainties about Chinese airports and lack of staff at global airports;

– Increased kerosene prices offset by cost savings;

– Continuation of debt reduction through the repayment of public aid – first at the end of 2022, then May 2024 – and strengthening of assets through the issue of hybrid bonds in 2022 and 2023;

– Entries of interest to the Portuguese company TAP;

– After the doubling of revenues and the confirmation of the return to net profitability at the end of September, the anticipations to 2022 of a capacity in seat-km equal to 80% of 2019 levels for Air France-KLM and 115% for Transavia and an operating profit of 900 million euros;

– No dividend payment in 2021 (for the 7th consecutive year).

Results once again weakened for European airlines

With fuel accounting for up to 35% of their costs, professionals believe European airlines are unlikely to return to profit until 2023 or 2024 at the earliest. These players expect energy prices to remain high through at least 2023. The International Air Transport Association (IATA) has announced a cumulative loss forecast of $9.7 billion in 2022 for airlines worldwide, we will still have to wait until 2023 to see the return to profits on a global scale, due in particular to the soaring cost of oil and the increase in labor costs. Positively, travel demand seems to be resisting the uncertainties caused by the international economic and political situation. However, uncertainties about Covid, the war in Ukraine and rising prices are driving last minute bookings. According to Iata, only 8% of international bookings made at the end of May went beyond September.

The social climate is deteriorating in low-cost airlines

These companies are benefiting from a very strong recovery. They had already managed to monopolize 40% of air traffic in 2021, this percentage could even rise to 50% this year. However, the strike movements have affected the business of Volotea, EasyJet and Ryanair, with clashes over wages and working conditions. In general, the sector faces a shortage of personnel. After drastically cutting their workforce in 2020 and 2021, companies and airports need to recruit urgently to support the recovery of the business.

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