Netherland airline KLM agrees to $3.82bn government-backed funding

Netherland-based air carrier KLM has successfully availed a $3.82 billion, conditional government-backed support which will help the airline to see navigate the coronavirus crisis. As part of the arrangement, the airline will have to ensure cost reductions and improved environmental performance.

Earlier in April, the Netherlands government had committed to support KLM with an aid package in the form of state guarantees and loans amounting to between two and four billion dollars.

”After careful discussions with both the Dutch state and banks, KLM has agreed on the structure of a financing package to ensure liquidity,” the airline stated

The package which is facilitated by 11 banks, comprises a 90% state-guaranteed revolving credit facility of $2.69 billion with a maturity of five years. A direct state loan of $1.12 billion with a maturity of five and a half years is also been made available.

Once the financial package is approved by the Netherlands government, the first $746.5 million will be drawn from the new revolving credit facility to repay and end an existing credit facility drawn in March. KLM is also expected to withdraw a pro-rata amount of $255 million from the direct state loan.

”Follow-up withdrawals under both the revolving credit facility and the direct state loan are only possible if certain conditions imposed by the state are met. KLM will, therefore, draw up a restructuring plan that meets these conditions and determines the path for post-COVID-19 recovery. The plan also aims to review KLM’s current activities and adapt KLM to the changed economic reality.”
KLM Statement

KLM CEO Pieter Elbers stated, ”The financing package is necessary to secure the long and difficult road of recovery in the coming period. This is a very important step and I express my gratitude on behalf of all KLM colleagues to the Dutch state and the banks for their confidence in our organization and our future.

”In the coming period, we will be working on the restoration of the route network and, on the other hand, on the development of the restructuring plan and the far-reaching conditions that have been imposed on the package,” Mr. Elbers added.

Air France, KLM’s sister carrier had also received a European Commission backed a $7.86 billion support package including $4.49 billion in 90% state-backed loan guarantees and $3.37 billion in a shareholder loan.

Netherland and French governments have a difficult relationship over KLM, which prompted the former to boost its ownership percentage to 14% so that it can rival the stake of the French state.

The support for KLM doesn’t come cheap as the airline is obliged by the agreement to meet several performance-related milestones before it can further withdraw the support amount.

The conditions requiring the carrier to meet environmental targets are in line with similar conditions set out by the French government to Air France. KLM is expected to speak with the trade unions on the conditions that the government has imposed on the employment conditions of KLM employees once the deal clears the parliament.