Air France-klm: With a hybrid debt subject, Air France-KLM desires to search out some air in relation to Brussels

(BFM-Börse) – The airline group on Wednesday announced the issuance of hybrid debt worth 300 million euros with a potential dilution of almost 7%. The amount of this expenditure is allocated to reimbursement of state aid. The group is also threatened with a strike at Air France this winter, and the share falls on the Paris stock exchange.

Air France-KLM continues its flight plan to overcome the restrictions imposed by the European Commission. To get out of the corset imposed by Brussels – which prevents it, for example, from taking over more than 10% of another company’s capital – the Franco-Dutch airline group must repay 75% of an amount that includes both the 3 billion euros of the senior debt of the French state and the approximately 600 million that Paris paid out for the group’s capital increase in spring 2021. So far the company is at 60%.

To move closer to the 75% mark, Air France-KLM on Wednesday announced the launch of a hybrid debt offering, namely subordinated perpetual subordinated notes convertible into new shares and/or exchangeable for existing shares, for a Amount of 300 million euros.

The entire proceeds of this issue will thus be dedicated to the repayment of the government’s senior debt.

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These bonds will be issued at par, have a face value of 100,000 euros and are convertible and/or exchangeable for new and/or existing Air France-KLM shares, the company said. Final terms of the bonds should be set today and delivery of the bonds should take place on November 23, 2022, Air France-KLM said.

These bonds will bear nominal interest between 5.75% and 6.5% until November 2025. “From November 23, 2025 (inclusive), the Notes will bear interest at a rate of 1,300 basis points [13%, NDLR] above the three-year mid-swap rate in euros as the reference rate,” the company said.

This hybrid debt issuance also represents potential dilution for Air France-KLM holders. The airline estimates that under certain assumptions, particularly if it elects to solely deliver new shares during the conversion, this dilution would represent approximately 6.8% of the outstanding share capital.

Unsurprisingly, Air France-KLM shares on the Paris Stock Exchange welcomed the announcement down 11.8% at around 11:15 am.

“This announcement is a reminder to the market that more transactions of this type could take place in the coming months,” said Stephen Furlong, analyst at Davy. In fact, when it released its third-quarter results, Air France-KLM had warned that it could issue as much as €1.2 billion in hybrid debt in 2022 and 2023. “Furthermore, this announcement comes on a difficult day with related macroeconomic concerns about the situation in Poland,” he adds.

“In addition to the announcement of the issuance of hybrid debt, the risk of a strike at Air France for the holiday season is also weighing on events,” estimates Yi Zhong, an analyst at independent research firm AlphaValue.

Announcement of the strike for the Christmas season

Two flight crew unions, the Union of Civil Aviation Flight Crew (UNAC) and the Air France Group Flight Crew Union, have filed a strike for the period December 22 to January 2. In question is a conflict over the collective agreement for hostesses and stewards.

“This communication must serve as a warning to our management,” said the press release from these two unions. “If this warning goes unheeded, only a strong mobilization can tip the scales,” he adds.

In a statement sent to multiple media outlets, including BFM Bourse, Air France said it had read this notice and was puzzled by the same notice “during a new negotiation for the extension of the PNC agreement [Personnels navigants commerciaux, NDLR] has been working with the representative unions of the PNC since the end of September and must continue beyond January 2023”.

“Already throughout the negotiation phase, Air France management has committed itself to ensure that all the provisions governing the lives of cabin crew members remain unchanged. Air France will continue the dialogue as it has always done,” the company continues.

Julien Marion – ©2022 BFM Stock Exchange

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