Shanghai-based China Eastern Airlines is ready to buy additional shares in Air France-KLM. The Chinese Big-Three airline is looking to expand its partnership with Air France-KLM to contribute to the European airline’s one billion euro ($1.2 billion) share issue. In a statement released on Monday, Air France-KLM said that both airline groups have decided to extend their partnership scope.
Heavily backed by the French government who will take their ownership stake in the Franco-Dutch airline to just under 30%, China Eastern Airlines will invest as much as 168 million euros in taking its 8.8% stake up to 10%. The Dutch government, which currently owns around 14% of the airlines, will see its ownership share dilute to just over 9%. Likewise, American carrier Delta Air Lines who was at parity with China Eastern Airlines on 8.8%, will see its ownership decrease as it is not allowed to participate in the sale after receiving COVID-19 relief from the United States government.
2020 was the worst year for airlines
KLM’s reason not to participate in the deal was that unlike sister airline Air France, it does not need to strengthen equity capital in the short term. The share issue price will be between 4.84 euros and Monday’s closing price of 5.31 euros. The share issue announced last week to inject cash into the airlines is all a part of a four billion euro recapitalization.
This latest move by one of the world’s largest airline groups comes after a year of COVID-19 restrictions and shutdowns. All of which made 2020 the worst year ever for airlines.
Codeshare partners since 2000
China Eastern Airlines and Air France have both been codeshare partners since 2000, starting with the Paris to Shanghai route. A joint venture agreement followed in 2012, with the deal being extended to KLM in 2016. This led to China Eastern Airlines taking an equity stake in Air France-KLM in 2017 to solidify a long-term strategic partnership between the European and Asian carriers.
Following the equity increase in the Air France-KLM Group, China Eastern Airlines would like to do the following:
- Intensify commercial cooperation and extend collaboration in ground-service catering and maintenance
- When conditions are satisfactory, China Eastern Airlines would like to increase its footprint in the Beijing marketplace, with Paris-Bejing and Amsterdam-Bejing joining the joint venture between China Eastern Airlines and the Air France-KLM Group.
Air France to give up Orly slots
The Air France-KLM group got the go-ahead to receive money from the French government after the European Commission gave it the green light on April 6, 2021. The approval does, however, have strings attached, with Air France having to give up 18 take-off and landing slots at Paris Orly Airport (ORY).
The 18 slots are roughly 4% of Air France’s capacity at Orly and have low-cost carriers like Ryanair fuming. In a statement seen by Sky News the Irish airlines said:
“This latest tranche of state aid to Air France combined with these ineffective remedies will damage competition in the air transport market for decades to come.
“The 18 slots that Air France is being required to make available is nowhere near enough to allow others to offer a competitive challenge to Air France’s dominance at Paris Charles de Gaulle and Paris-Orly airports.”
With Air France being deemed by the government as being of national importance, there is nothing Ryanair and other airlines can do. As for China Eastern Airlines, increasing its stake in Air France-KLM is probably a good move, especially if it helps in Beijing.
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