The European Union on Monday approved a 3.4 billion-euro ($3.8 billion) financial support package, backed by the Netherlands government, to help national champion KLM get through the coronavirus crisis.
The Dutch aid is on top of 7 billion euros ($7.9 billion) in funding granted earlier this year by France for sister carrier Air France.
Under the Dutch rescue program, KLM will receive a 2.4 billion-euro revolving credit facility from 11 banks. Loans are 90% guaranteed by the government and mature in five years. The Netherlands is also providing a direct loan of 1.1 billion euros, which is subordinate to the credit line and requires KLM to restructure for improved profitability and take steps to further reduce environmental impacts.
KLM is the second-largest private employer in the Netherlands, with more than 36,000 employees. It is also a large cargo carrier in its own right, but when combined with Air France the two rank in the top 10, based on freight-ton kilometers flown, according to the International Air Transport Association. Since the start of the pandemic, Air France-KLM (OTC US: AFRAF) has been very active moving essential supplies with passenger aircraft repurposed for cargo shipments.
Without government assistance, KLM said it didn’t have the liquidity to ramp up operations as travel restrictions ease around the world. It suffered high operating losses when countries closed their borders to prevent COVID from spreading.
“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 [financial aid] will provide KLM with the liquidity that it urgently needs to withstand the impact of the coronavirus outbreak,” EU competition chief Margrethe Vestager said in a statement.
Late last month Deutsche Lufthansa AG received a bailout from the German government. As a condition for that aid, the EU demanded the airline give up some slots at its Munich and Frankfurt hubs to competitors. Lufthansa subsidiaries Austrian Airlines and Swiss International Air Lines also received financial aid packages structured by their respective governments.
Many airlines are still hoping for government rescues as the industry suffers the worst economic crisis in its history. The International Air Transport Association estimates airlines will collectively lose $84 billion in 2020. Several airlines have filed for bankruptcy protection and some small local carriers have gone under.