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Air France-KLM warns of more pain to come after €7.1bn loss

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Air France-KLM has warned that there is more pain to come for the Franco-Dutch carrier as the fallout from the pandemic pushed it to an annual €7.1bn net loss.

The struggling airline warned of a “challenging” first quarter and a deeper hit to earnings before interest, taxes, depreciation, and amortisation than the loss of €407m in the fourth quarter as the coronavirus crisis ravages the travel industry.

Air France-KLM expects to fly 40 per cent of its pre-crisis capacity in the first three months of the year as restrictions on travel keep people at home.

Ben Smith, chief executive, said the pandemic was “the most severe crisis ever experienced by the air transport industry”.

A year into the pandemic, the sector and its stretched balanced sheets are facing another summer in which tourists are unable to fly, raising the prospect of additional state support.

The group’s fourth-quarter net loss of €1bn was less severe than analysts had forecast. Air France-KLM “expects recovery in the second and third quarter” as coronavirus vaccinations are rolled out.

Analysts, however, are less optimistic.

“Without a meaningful acceleration in vaccinations, we worry that European governments will not have enough conviction to remove penalising restrictions on air travel in time for summer travel — testing airlines’ balance sheets, and their investors’ resolve,” said Daniel Roeska at Bernstein.

The headline loss included restructuring charges linked to lay-off plans. Air France-KLM last year slashed thousands of jobs, and took on billions in state-back loans, to weather the Covid-19 crisis.

The airline, created in 2004 by the merger of France’s flag carrier with the Netherlands’ own national champion, is in conversations with the French and Dutch governments, as well as the European Commission, about further assistance.

The expectation, said Air France-KLM, is that a recapitalisation is close. The carrier said on Thursday that it continued to “work on quasi-equity and equity solutions . . . and expects progress in the following weeks”.

However, the talks have been hung up for weeks. The EU has been pushing Air France-KLM to give up slots at Paris Orly airport in exchange for aid, according to people familiar with the matter.

“The French and Dutch governments recognise the importance of airlines to their national economies and will maintain operations,” Bernstein’s Roeska said.

“The scale of the hole in AF-KLM’s balance sheet is large, and incremental debt-carrying capacity so small, that a substantial dilution looks highly probable with few alternative ways out,” he added.

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