PARIS: France will contribute up to €4 billion (US$4.7 billion) to a recapitalisation of Air France-KLM and more than double its stake in the airline group to almost 30 per cent, under plans announced on Tuesday (Apr 6) with European Union approval.

Air France-KLM’s move is the latest by a traditional airline to shore up its finances after more than a year of COVID-19 travel shutdowns and deep losses for the sector.

The French government will convert a €3 billion loan granted last year into a perpetual hybrid bond instrument and commit up to €1 billion to a planned share issue, raising its stake in Air France-KLM from the current 14.3 per cent.

“This will make the state Air France’s biggest shareholder,” Finance Minister Bruno Le Maire said, describing the step as a “sign of commitment” to the airline and its workers.

The agreed conditions require France to find a “credible exit strategy” within a year and cut its shareholding to pre-crisis levels by 2027. Dividends, share buybacks and management bonuses are banned until most or all of the aid is repaid.

Under the approved terms, Air France will also give up 18 Paris-Orly take-off and landing slots to competitors, amounting to 4 per cent of its current portfolio at the airport.

But in a break with usual practice that may anger low-cost rivals such as Ryanair, their reallocation to competitors will be limited to aircraft based at Orly with crews employed on local contracts.

That will shield a planned expansion of Air France’s own budget carrier Transavia from unfair competition, Air France-KLM Chief Executive Ben Smith told reporters on Tuesday.

The restrictions on slot reallocation were “one of the sticking points” in drawn-out talks with Brussels, Le Maire said. “We do not want any social dumping.”

Ryanair did not immediately respond to a request for comment.

The bailout is the closest a major European carrier has come to renationalisation, after Germany took a 16.7 per cent holding in Lufthansa as part of its rescue package.

The Netherlands, which bought 14 per cent of Air France-KLM in 2019 to counter French influence, will not join the capital hike – breaking a governance stalemate at the group while potentially adding to break-up pressures from some Dutch political quarters.

The likely dilution of the Dutch government’s stake to 9.3 per cent “has no consequences for the protection of public interests”, Dutch Finance Minister Wopke Hoekstra told lawmakers on Tuesday.

Dutch officials are in separate talks with Brussels over new support for KLM likely to entail a similar conversion of the state’s €1 billion loan into hybrid debt.

Delta Air Lines, an 8.8 per cent shareholder in Air France-KLM, is barred from investing under US federal aid rules and will be diluted. China Eastern plans to acquire new stock while keeping its stake below 10 per cent, the group said.

Air France-KLM shares were trading 0.3 per cent lower at €5.12 as of 7.44am GMT (3.44pm, Singapore time).

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