AMSTERDAM (Reuters) - The Dutch government said on Friday it would provide 3.4 billion euros ($3.8 billion) in support to the Dutch arm of Air France-KLM (AIRF.PA), capping months of wrangling with France over the role each country should play in a coronavirus rescue deal.
The move comes after Paris announced a 7 billion euro bailout package for Air France in April and as governments look to shore up an industry hammered by a travel slump expected to last for years.
As part of the package, the Dutch government will appoint an observer to KLM’s board to ensure taxpayer money is spent only on the Dutch subsidiary, but won’t have control of the business.
It will also force painful reforms, including pay and spending cuts, a freeze on bonuses and dividends, as well as ambitious environmental targets that were sought by the Dutch parliament as a condition for aid.
“This package is needed to make sure that KLM and Air France can continue to fulfil the important role that they have in our economy,” Finance Minister Wopke Hoekstra told a news conference.
Reuters first reported details of the aid package on Thursday. Sources said The Hague had sought a seat on KLM’s board, but was rebuffed by Paris. The countries’ leaders met over the matter this month.
The French and Dutch governments have frequently been at odds over management and strategy at Air France-KLM, created by the 2004 merger between the two national airlines. Each holds a 14% stake in the group.
At 0832 GMT, Air France-KLM shares were up 1.8%.
The Dutch aid will ensure KLM can continue to operate at least into 2021 and the government remains willing to provide further assistance if needed, Hoekstra said.
KLM will receive 2.4 billion euros in bank loans with guarantees, and a 1 billion euro direct loan. A consortium of 11 foreign and domestic banks will provide the financing, Hoekstra said.
Air France is drawing up voluntary layoff plans which, combined with natural attrition, are expected to affect about 20% of its workforce, or 8,000-10,000 jobs.
KLM will present a draft restructuring plan in July.
“The goal is to keep as many jobs as possible, but we can’t close our eyes to the reality that the airline and industry is facing,” CEO Pieter Elbers told reporters on a call.
KLM has a voluntary redundancy plan for its 30,000 employees.
Under the aid package, which must still be approved by the European Union, KLM pilots will have to take a pay cut of up to 20%, and the company as a whole will have to cut costs by 15%.
Other concessions that had been sought by Dutch parliament include fewer night flights and a 50% reduction in carbon dioxide emissions by 2030, as well as executives surrendering bonuses, and a halt on dividend payments.
Reporting by Toby Sterling, Anthony Deutsch and Laurence Frost; editing by Jason Neely and Mark Potter