190227 KLM
Air France-KLM getting help from two of its key shareholders, but the Dutch stayed out. Image Credit: Reuters

Paris: Air France-KLM raised 1.04 billion euros ($1.25 billion) through a share issue that saw the French government's holding in the struggling airline increase to 28.6 per cent - and more than triple that of the Netherlands.

The proceeds will be used to strengthen the balance-sheet of Air France, the carrier said in a statement. The Dutch state's holding stands at 9.3 per cent after the sale.

France's increased stake upsets a previous shareholding equilibrium with the Dutch state, in which both countries held about 14 per cent. The Netherlands declined to participate in the capital increase, which was part of a French rescue plan unveiled earlier this month worth about 4 billion euros.

Read More

Help out at any cost

The bailout also includes the conversion of a 3 billion euro direct loan from the French government into hybrid instruments. French Finance Minister Bruno Le Maire has left the door open for more support to the carrier should the French arm of the struggling airline need more help before the COVID-19 crisis eases for aviation companies. CEO Ben Smith has indicated a further recapitalization could be sought later this year.

Air France-KLM shareholder China Eastern Airlines also participated in the issue, with its stake now standing at 9.6 per cent. The two airlines reinforced their existing partnership as part of the exercise.

The Netherlands gradually acquired its stake in the carrier just over two years ago, triggering a dispute between the European nations. While that move blindsided Paris and laid bare the Dutch intention to exert more influence on Air France-KLM, it remains unclear how this will work going forward.

France and the Netherlands have often been at odds since the 2004 merger of their respective national airlines, with the Dutch arm long resenting French control. Air France also has weaker profitability than KLM and history of labor conflict.