Air France-Klm: Major upheaval is coming to the Air France capital with the arrival of the CMA CGM

(BFM Bourse) – On Tuesday, the Franco-Dutch air transport group began a capital increase that will strengthen its balance sheet by more than 2 billion euros. The new Air France-KLM shares are being offered to shareholders at a preferential price of €1.17 per share. The operation will allow CMA CGM to take a share in the capital, while the French and Dutch states will subscribe for their share, and China Eastern and Delta Airlines will allow themselves to be partially diluted.

A new move under the recapitalization plan developed by Air France-KLM to further strengthen equity to return a Net Debt to EBitda ratio of between 2.0x and 2.5x by 2023 (excluding the loan from the Dutch shareholder), vs. with an unacceptable level of 11 times at the end of 2021. In line with what management announced on Feb. 17 when publishing its annual report, on Tuesday the group will begin a capital increase in cash (and by converting part of a loan previously provided in the case of the French state), which should bring 2.256 billion euros. All shareholders can participate in this capital increase by purchasing shares at a reduced price of 1.17 euros per share.

With a significant dilution, Air France-KLM is strengthening its capital as the company prepares to issue 1,928 million new shares, quadrupling its capital. The net proceeds from the issuance will be used to repay “super-subordinated” debt securities issued in April 2021 and held by the French state, with the remainder reducing net debt. By reducing its debt, the company will be able to free itself from the conditions imposed by the European Commission’s time frame, which, among other things, prohibits it from making acquisitions, as it risks becoming even more marginalized in the aviation sector. called to new concentrations.

The operation, combined with other planned balance sheet strengthening measures, including the Apollo Fund’s equity stake in Air France’s €500 million spare engine fleet subsidiary, added expected EBITDA recovery to expected EBITDA recovery. France-KLM is back on the right financial track.

“The operation we are launching today brings to life the work we have been doing for several months to consolidate our balance sheet and strengthen our financial independence. It will also help the Company regain its strategic wiggle room. As the recovery is confirmed and our economic performance is improving, especially under the influence of an ambitious transformation plan whose structural benefits are already visible and will continue, we want to be able to seize every opportunity in the aviation sector undergoing transformation and be able to accelerate our environmental commitments. I would also like to thank our major shareholders for their renewed support for this operation, and I am also delighted to welcome CMA CGM into our equity as a new reference shareholder and industrial partner in our freight business,” said CEO Benjamin Smith.

Strong shareholder dilution

Specifically, each shareholder will be granted a pre-emptive subscription (DPS) right for each share it owns at the close of trading on Tuesday. Then, during the subscription period, which will last from May 27 to June 9, it will be possible to subscribe for 3 new shares at a price of 1.17 euros with a 40% discount compared to the ex-right theoretical value (-72, 8). % compared to the last price excluding the cost of the right to subscribe).

People who do not want to participate or only partially will be able to resell their subscription rights by noting that the DPS subscription period is delayed by two days compared to the subscription, i.e. between May 25th and June 7th. Thus, this DPS transfer mechanism makes it possible to compensate those who do not want to return to the cauldron the losses they suffer. Because a shareholder who owns, for example, 1% of the shares, if he does not participate in the operation, will have only 0.25% of the group’s capital.

Among the main current shareholders, the first of them with 28.6% of the capital, the French state, will subscribe to the entirety of its pre-emptive subscription rights, not by providing new funds, but by paying off debts (by giving up part of its debt securities to the company). At the head of 9.3% of the capital at present, the Dutch state will also subscribe to its entire DPS – subject to the consent of the Dutch Parliament.

China Eastern and Delta reduce their share

China Eastern Airlines (9.6% of the capital) and Delta Air Lines (it owns 5.8%) planned to conduct a black operation by selling preferential subscription rights for an amount equivalent to that which they would subscribe for by balancing their DPS. In other words, they won’t have a net payout, they won’t make any money either, and they’ll keep their participation, which will be proportionally reduced. The Fonds Commun de Placement d’Entreprise (collectively owning 2.4% of the capital of Air France-KLM) and the SPAAK (Stichting Piloten Aandelen Air France-KLM) pilot fund with 1.7% of the capital intend to do the same.

Conversely, CMA CGM will buy out PSR in order to be able to subscribe and thus realize its equity entry, which was announced last week. The shipowner, which has partnered with Air France-KLM in the cargo business, aims to maximize its equity stake to 9%.

Guillaume Bair – © 2022 BFM Bourse

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