European Commission approves €3.4 billion KLM bailout

European Commission approves €3.4 billion KLM bailout

The European Commission has approved, under EU State aid rules, a €3.4 billion Dutch aid measure consisting of a State guarantee on loans and a subordinated State loan to KLM. As a result of the imposition of travel restrictions introduced by the Netherlands and by many destination countries to limit the spread of the coronavirus, KLM has suffered a significant reduction of its services, which resulted in high operating losses. When the deal was first announced, Ryanair boss Michael O’Leary has called on the European Union to block a rescue package for KLM just a day after he slammed the EU for approving Lufthansa’s €9bn bailout deal.

Bailout package promised by the Dutch government to airline KLM got approved today. After months of wrangling with France over the role each country should play in a coronavirus rescue deal, the Netherlands said it would support the Dutch arm of Air France-KLM (AIRF.PA) with 2.4 billion euros in bank loans with guarantees, and a 1 billion euro direct loan, Reuters reported.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “KLM plays a key role for the Dutch economy in terms of employment and air connectivity. The crisis has hit the aviation sector particularly hard. This €3.4 billion State guarantee and State loan will provide KLM with the liquidity that it urgently needs to withstand the impact of the coronavirus outbreak. The Netherlands imposed certain conditions on the aid measure with respect to profit allocation, working conditions and sustainability. Very good. Member States are free to design measures in line with their policy objectives and EU rules.”

As a result of the imposition of travel restrictions introduced by the Netherlands and by many destination countries to limit the spread of the coronavirus, KLM has suffered a significant reduction of its services, which resulted in high operating losses. Since the gradual easing of restrictive measures, as of the beginning of June 2020, air passenger traffic is slowly recovering.

KLM is a major network airline operating in the Netherlands. It is part of the Air France-KLM group, in which the Dutch state holds a participation. KLM is the Netherlands' second-largest private employer with over 36,600 employees. KLM is also a very important company for the Dutch economy, as it ensures the connectivity of the Netherlands with many destinations in Europe, with the Dutch regions overseas and the rest of the world. Since the start of the coronavirus outbreak, KLM has also played an essential role in the repatriation of citizens and for the transport of medical equipment.

When the deal was first announcedRyanair boss Michael O’Leary has called on the European Union to block a €3.4bn (£3.1bn) rescue package for KLM. In a statement, O’Leary said: “We call on the European Commission to block this subsidy doping to KLM, which will further reduce competition and consumer choice in the Dutch and French markets”. He added that the deal was bad for competition, saying that it delay “necessary” reforms of the Franco-Dutch group. His comments come just a day after he slammed the EU for approving Lufthansa’s €9bn bailout deal from the German state on similar grounds, City A.M. wrote.

The International Civil Aviation Organization provided information about effects of Novel Coronavirus (COVID-19) on Civil Aviation:

Economic Impact AnalysisThe latest estimates indicate that the possible COVID-19 impact on world scheduled passenger traffic for the full year 2020, compared to Baseline (business as usual, originally-planned), would be:

– Overall reduction ranging from 42% to 52% of seats offered by airlines
– Overall reduction of 2,369 to 2,947 million passengers
– Approx. USD 316 to 390 billion potential loss of gross operating revenues of airlines.

Author: The FINANCIAL