The Dutch government has frozen its €3.4 billion ($4.0 billion) bailout package for KLM. The loan has been suspended after pilots rejected a wage-freeze until at least 2025. KLM has responded by saying that it will not be able to survive without outside help. But with Air France set to receive help from the French government, what’s next for KLM?
At the end of last month, we reported that the Dutch Government rejected KLM’s restructuring plan and would prevent the group from accessing any more of the loan. KLM had already pulled €277 million of the loan in August. The problem is that KLM has failed to secure agreements with unions regarding some labor costs. The agreements need to last the same amount of time as the loan; until 2025.
Failure to agree
With the government holding firm that no more money will be accessible until the loan conditions are met, KLM has very few options. KLM must find a way to deal with the unions that meet the loan requirements or prepare for a very uncertain future.
Since the failure to meet the end of October deadline, KLM has returned to talks with unions to find a new agreement. In an open letter to the Dutch Parliament, the Dutch Finance Minister confirmed that if a new agreement was reached regarding the five-year wage freeze, the loan could still go ahead. The new agreement might be slightly less than unions were hoping for. However, a wage freeze may be preferable to bankruptcy and a complete loss of jobs.
If KLM doesn’t find a way to broker an agreement, this could well be the beginning of the end. The group released its third-quarter results last week and, as predicted, things are looking serious. KLM CEO Pieter Elbers painted a very negative picture stating that current cash reserves would only last a few months with the new lockdown rules. The world’s oldest airline is in a challenging situation.
What about Air France?
In June, the French Government confirmed it would be providing Air France with a €7 billion ($8.08 billion) loan. Like the Dutch, it comes with plenty of conditions but so far, Air France has had no problem meeting them. Both carriers are in desperate need of financial aid, but so far, only one of them is set to receive it.
But what will happen if Air France survives and KLM doesn’t? Well, the two groups cooperate daily. Splitting the group would be messy, difficult and cause problems for passengers as well as for Air France. Therefore, it’s unlikely to reach the situation where the group will split. What’s more likely is that KLM will need to downsize significantly.
Hopefully, before reaching such an extreme situation, the unions will agree to a deal that will allow KLM to access the government aid it so desperately needs. However, the longer the pandemic continues, the more difficult the situation will become. An agreement needs to be reached within the next few weeks. If not, KLM may need to make some serious cuts to its network, fleet, and operations to survive.