First half financial report
January-June 2020
Société anonyme w ith share capital of €428,634,035
Registered office: 2, rue Robert Esnault-Pelterie, 75007 Paris
Mailing address: Air France-KLM, AFKL.FI, 95737 Roissy Charles de Gaulle Cedex
Paris Trade and Company Register No.552,043,002
Free translation into English for convenience only - French version prevails
CONTENTS | ||
1. First half activity report | 5 | |
1.1 Activity | 5 | |
Strategy | 5 | |
Business review | 8 | |
Passenger network business | 8 | |
Cargo business | 9 | |
Transavia | 9 | |
Maintenance business | 10 | |
The Air France-KLM fleet | 11 | |
Highlights | 13 | |
Outlook and subsequent events | 17 | |
Risk factors | 18 | |
Related parties | 18 | |
1.2 Corporate governance | 19 | |
The Board of Directors | 19 | |
The CEO Committee | 22 | |
The Group Executive Committee | 23 | |
Stock market and shareholder structure | 24 | |
Comments on the financial statements | 26 | |
Key financial indicators | 30 | |
2. Unaudited interim condensed consolidated financial statements | 34 | |
Consolidated income statement (unaudited) | 35 | |
Consolidated statement of recognized income and expenses (unaudited) | 36 | |
Consolidated balance sheet (unaudited) | 37 | |
Consolidated statement of changes in stockholders' equity (unaudited) | 38 | |
Consolidated statements of cash flows (unaudited) | 39 | |
Notes to the consolidated financial statements (unaudited) | 44 | |
1. | Business description | 45 |
2. | Restatement of accounts 2019 | 45 |
3. | Significant events | 47 |
3.1 Covid-19 | 47 | |
3.2 Events that occurred during the period | 48 | |
2.2 Subsequent events | 50 | |
4. | Accounting policies | 50 |
4.1 Accounting principles | 50 | |
4.2 Preparation of condensed interim consolidated financial statements | 52 | |
4.3 Use of estimates | 53 | |
5. Change in the consolidation scope | 53 | |
First half financial report 2020 | Air France-KLM 2 |
6. | Information by activity and geographical area | 53 | |
6.1 Information by business segment | 54 | ||
6.2 Information by geographical area | 55 | ||
7. | External expenses | 58 | |
8. | Salaries and number of employees | 59 | |
9. | Amortization, depreciation and provisions | 60 | |
10. | Other income and expenses | 60 | |
11. | Other non-current income and expenses | 61 | |
12. Net cost of financial debt and other financial income and expenses | 62 | ||
13. Income taxes | 63 | ||
13.1 | Income tax charge | 63 | |
13.2 | Deferred tax recorded in equity (equity holders of Air France -KLM) | 64 | |
13.3 | Effective tax rate | 64 | |
13.4 | Unrecognized deferred tax assets | 65 | |
14. | Earnings per share | 66 | |
14.1 | Income for the period - Equity holders of Air France-KLM per share | 66 | |
14.2 | Non-dilutive instruments | 66 | |
14.3 | Instruments issued after the closing date | 66 | |
15. | Impairment | 67 | |
16. | Tangible assets and right-of-use assets | 68 | |
17. | Capital expenditures | 68 | |
18. | Trade accounts receivables | 69 | |
19. | Other assets | 69 | |
20. | Cash, cash equivalents and bank overdrafts | 70 | |
21. | Pension assets and provisions | 70 | |
22. | Equity attributable to equity holders of Air France-KLM S.A. | 71 | |
22.1 | Breakdown of stock and voting rights | 71 | |
22.2 | Reserves and retained earnings | 72 | |
23. | Return obligation liability and other provisions | 72 | |
23.1 | Return obligation liability and other provisions | 72 | |
23.2 | Contingent liabilities | 72 | |
24. | Financial debt | 73 | |
24.1 | Perpetual subordinated debt | 75 | |
24.2 | Bonds | 77 | |
24.3 OCEANE | 77 | ||
24.4 | Other debt | 78 | |
24.5 | Loans guaranteed by the French and Dutch States | 78 | |
24.6 | Maturity analysis | 79 | |
24.7 | Credit lines | 80 | |
25. | Lease debt | 80 | |
26. | Net debt | 81 | |
27. | Deferred revenue on ticket sales | 82 | |
28. | Other liabilities | 82 | |
29. | Flight equipment orders | 82 | |
30. | Related parties | 83 |
3. Information and control | 84 | |
Attestation by the person responsible for the first half financial report to June 30, 2020 | 84 | |
First half financial report 2020 | Air France-KLM 3 |
Statutory Auditors' review report on the 2020 half-year financial information | 85 |
First half financial report 2020 | Air France-KLM 4 |
1. First half activity report
1.1 Activity
Strategy
The Air France-KLM Group's ambitions
The Group's business brings people, economies and cultures together, and drives economic grow th and social progress. The overarching ambition of the Air France-KLM Group is to become an aviation champion in Europe and one of the most pow erful in the w orld for its staff, customers and shareholders, while assuming its role as a pioneer in sustainable aviation. As such, flight safety is both an absolute imperative that the Group ow es to its customers and staff, and a daily commitment.
The Air France-KLM model: creating value
The Air France-KLM value creation model addresses all of the Group's stakeholders, namely employees, shareholders, customers, suppliers, authorities, institutional and non - governmental organizations, and other local partners. As part of its day - to-day activities, the Group interacts with diverse stakeholders,while its business and operations have multiple impacts (qualitative and quantitative) on society. The value creation model show s the impact areas w here the Air France-KLMGroup adds value and w hich, thanks to its fundamental strengths and unique competitive advantages, enables a response to the societal and sustainability challenges.
Core assets and unique competitive advantages
As the European leader for intercontinental traffic on departure fromEurope, Air France-KLMis a major global air transport player. Its main businesses are passenger and cargo transportation through its network activities, low -cost transportation and aeronautical maintenance.
The Group takes action to reconcile grow th with environmental protection, social value and local development at its hubs and destinations. By developing state - of - the - art technologies, investing in R&D and innovation, and partnering w ith stakeholders, the Group strives to optimize the use of its different forms of capital and resources. This approach gives Air France-KLMa strong
position in the aviation industry's competitive landscape.
Air France-KLM is committed to the value of its w orkforce w orldwide. Through our employees' collective dedication, professionalismand accomplishments, Air France-KLMis able to provide premium services and a caring journey, fostering lasting relationships w ith customers w hile operating in an efficient and safe manner.
Air France-KLM has a portfolio of strong brands, positioned in complementary markets w ith their ow n specific operating models, aligned w ith customer expectations. The common frequent flyer program, "Flying Blue", contributes to reinforcing th e attractiveness of the brands.
Air France-KLM is pursuing its commercial integration strategy w ith its principal partners w orldwide, like Delta Air Lines, Inc. and China Eastern Airlines, and through the SkyTeam alliance, to offer value-added services and innovations, whilst reinforcing its netw ork and building mutual trust. Engaging w ith stakeholders through soundand regular dialogue is also key for Air France-KLM in terms of identifying emerging issues, tackling upcoming challenges and better understanding their expectations. Air France- KLM sees this as an opportunity to continue strengthening its sustainable and local footprint, creating the basis for trust and long- term acceptance, and developing its activities.
In 2019, the Air France-KLM Group operated one of the largest netw orks between Europe and the rest of the world, organized around the dual intercontinental hubs of Paris-CDG and Amsterdam-Schiphol, w hich are tw o of the four largest connecting platforms in Europe, and took advantage of numerous partnerships to offer its customers a global netw ork. Given its presence in all the major air transport markets, the Group also has a natural risk hedge since no one market represents more than a third of netw ork revenues. In 2019, Air France-KLM confirmed its leadership position in terms of traffic w ith just over 104 million passengers carried between Europe and the rest of theworld, and on intra-European routes on departure fromthe Group's natural markets.
First half financial report 2020 | Air France-KLM 5 |
The value creation model
The Air France-KLM Group's ambition is to become a European aviation champion and one of the most pow erful in the w orld for
its staff, customers and shareholders, while assuming its role as a pioneer in sustainable aviation. The Group's value creation model is detailed on pages 18 to 23 of the 2019 Universal Registration Document.
Strategic orientations
1. Response to the Covid-19 crisis
The sanitary crisis caused by the Covid-19 pandemic considerably challenged the airline industry during the 2020 first semester. Sanitary measures of quarantines, social distance and border closures have led to the w orst economic crisis since the Second World War. These travel bans and lockdow ns in every continent have had dramatic effects on air travel demand as well as airlines' business operations. For w eeks, Air France and KLM w ere operating under 10% of their regular scheduled capacity w hile Transavia and Hop! w ere forced to ground all flights. At the end of May, the Group w as still operating only 20% of capacity compared to last year and by summer 2020, depending on border re-openings, Air France-KLM w ill operate close to 80% of its netw ork with a reduced capacity, covering approximately 35% to 40% of Available Seat Kilometers. The Go-Forw ard plan for the next five years was presented in November 2019 and it included an ambitious transformation plan. The Air France-KLMresponse to the crisis has been centered around key principles: safety and social responsibility. Capacity has been reduced in line w ith the
drop in demand and travel bans w hile cooperating w ith the French and Dutch States, and ensuring the safety of employees and customers through immediate actions:
- Employees have been equipped w ith necessary supplies such as facemasks and gloves to ensure a sanitary w orking environment.
- Compulsory face masks for customers on all flights along w ith temperature checks before boarding from the Roissy- Charles de Gaulle hub.
- Repatriation of customers fromall over the w orld. Since the beginning of the outbreak, the Air France-KLM Group has repatriated more than 500,000 European citizens from across the w orld w ith the exceptional engagement of the employees, responding to the needs and requirements of the French and Dutch nations.
The Air France-KLM Group also deployed cargo capacity to respond to the increasing demand for essential medical supplies.
Cargo flights w ere essential elements in the fight against Covid-19. Over one hundred million pieces of protective medical equipment have been shipped through air bridges using cargo and converted passenger aircraft.
The Air France-KLMGroup also took decisive financial actions over the last few months, w hich have resulted in immediate cash savings
- Revision of Capex investment plan dow nw ards: €1.5billion in 2020
- Cut of operating costs
- Halt of all non-safety and non-operational critical projects,
- Significant reduction of all consultants and external staff.
The Air France-KLMGroup's ability to rapidly adapt to this major crisis and to support governments and fellow citizens shows how capable and quickly the Group is in engaging and mobilizing w hen necessary.
2. Due to the new reality, the Air France-KLM Group is adapting and accelerating its transformation plans
The Group's strategic orientations started to deliver results in 2019 and in early 2020. The Covid-19 crisis w hich commenced in
Europe at the end of February 2020 had an unprecedented impact on the industry. The Group does not anticipate a return to the pre-crisis levels of global demand before several years.
In this context, the Group w ill look to continuously flex its activity to the development of demand for travel and w ill be adapting its capacity and commercial approach to adjust to the new reality. The Group expects to operate a capacity of Available Seat Kilometers for 2021 minimum -20% compared to 2019 and anticipates that a recovery to the pre-crisis capacity level w ill be reached by 2024.
Notw ithstanding the current crisis situation, the principles of Air France-KLM's Go Forw ard plan remain unchanged, aiming to reinforce the Group's competitive positioning by leveraging its strengths. The Group's sustainability commitments are also reasserted; Air France-KLMhas set specifically for Environment a 2030 commitment to reducing its CO2 emissions per passenger by 50% versus 2005. This is achieved by a multi-facet strategic solution w ith real reductions of CO2 due to a modern fleet, optimization of fuel use, scale up of sustainable aviation fuel and compensation via market-based measures including CO2 schemes and voluntary offsetting by the Air France and KLM customer programs.
In the post-Covid-19 w orld, the Air France-KLM Group needs to balance its medium-term focus on managing liquidity risk and optimizing Capex investments w ith the long-term focus on achieving increased competitiveness and sustainability targets. The Group plans to do this through the five key levers of labor, productivity, netw ork, fleet and cost management.
In response to the Covid-19 crisis and in order to carry out its reconstruction plan, the Group and its airlines must significantly reduce the number of employees.
Air France's restructuring plan calls for a reduction of 6,560 FTEs, or minus 16% of the total number of FTEs by the end of 2022 and Hop!'s restructuring plan calls for a reduction of minus 1,020 FTEs, or minus 42% of the total number of FTEs by the end of 2022. These plans w ill be carried out w ith a focus on volunteering and solidarity betw een the different companies in the group.
In addition, the implementation of the partial activity (w ithout compensation for lost wages) and the application of the variable remuneration system for pilots and flight attendants (MGA) have made it possible to reduce the w age bill. Air France has also announced a policy of salary moderation through the suspension of negotiations on the profit-sharing scheme for the years
First half financial report 2020 | Air France-KLM 6 |
2020/21/22 and the freezing of general and individual increases (excluding promotion and seniority). Discussions may also be launched to identify and define, beyond the announced staff reductions, the savings required to meet the economic trajectory.
In the Netherlands, KLM's restructuring plan contains a significant reduction of FTEs compared to pre-Covid-19. KLM has already launched a voluntary departure plan to w hich 2,000 staff (in FTE) have subscribed at the closing deadline. The departures due to stoppage of external and temporary contracts will also contribute to this plan. The next steps in the social plan to achieve these reductions w ill be discussed by KLM w ith the unions.
KLM w ill announce their full restructuring plan by October 2020. In addition, as imposed by the Dutch State, adjustment of labour conditions for employees w ho earn above a certain threshold is conditional to the full draw ing of State financing. These adjustments are under discussion w ith labor representatives.
Future competitiveness and sustainability ambitions are largely linked to netw ork and fleet decisions. Mid- and long-term fleet investments drive the exit fromthe current crisis and are essential to achieve increased competitiveness and sustainability targets.
The Group therefore intends to keep the schedule as much as possible intact of committed fleet deliveries betw een 2021 -2025, for w hich the Group is carefully considering financing options and is maintaining highest level of flexibility in fleet development to adapt in view of current uncertainty on the recovery trajectory.
In the context of the Covid-19 crisis the Group vow s to accelerate its key transformation initiatives and all non-essential investments and expense are to be minimized.
Key measures, to improve structurally the future unit costs, are being implemented including a stringent policy to cancel or delay non-essentialnon-fleet capex investments, including IT, Ground and real-estate investment projects, the implementation of a control tow er procedure on controllable external expenses and a freeze on contracting of external staff. In addition, new transformational initiatives to further simplify the organization and processes have been identified and added to the objectives.
With the reduction in capacity, consequential organizational restructuring and acceleration of transformations the Group is realigning to the new reality. The Group's medium-term financial ambition is maintained w ith a delay of one year, confirming the objective for 2025 to reach an operating margin of 7% to 8% and positive operating free cash flow in 2023. The capex investment level for 2021 to 2024 w ill be around €3 billion per year on average; it remains largely flexible.
Furthermore, the Board of Directors of the Air France-KLM Group is continuing its reflections initiated last April on the plan to strengthen the Group's equity and quasi-equity by May 2021, subject to market conditions.
First half financial report 2020 | Air France-KLM 7 |
Business review
Network business: sharp decline in operating income in the first half 2020, due to the impact of the Covid-19 crisis
Second Quarter | First Half | |||||
Network | ||||||
2020 | Change | Change at | 2020 | Change | Change at | |
constant | constant | |||||
currency | currency | |||||
Total revenues (€m) | 938 | -84.3% | -84.4% | 5,216 | -53.1% | -53.5% |
Scheduled revenues (€m) | 827 | -85.5% | -85.6% | 4,896 | -53.8% | -54.1% |
Operating result (€m) | -1,123 | -1,438 | -1,436 | -1,852 | -1,906 | -1,933 |
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
During the first half, due to the impact of Covid-19, the revenues generated by the passenger and cargo businesses fell by 53.5%.
The operating result for the Netw ork business stood at €(1,852) million in the first half 2020, i.e. a €1,906 million decline relative to 2019.
Measures w ere taken to preserve cash, notably the reduction in capex, cost-savings, the deferral of supplier payments and part- time w orking for employees.
Passenger business: good start in January and February 2020, a first half 2020 sharply down due to the impact of Covid-19 from March
Second Quarter | First Half | |||||
Passenger network | ||||||
2020 | Change | Change at | 2020 | Change | Change at | |
constant | constant | |||||
currency | currency | |||||
Passengers (thousands) | 1,128 | -95.1% | 16,889 | -60.4% | ||
Capacity (ASK m) | 8,765 | -88.4% | 71,168 | -51.1% | ||
Traffic (RPK m) | 3,261 | -95.1% | 53,109 | -58.3% | ||
Load factor | 37.2% | -51.4 pt | 74.6% | -12.9 pt | ||
Total passenger revenues (€m) | 372 | -93.2% | -93.2% | 4,183 | -58.4% | -58.6% |
Scheduled passenger revenues (€m) | 335 | -93.6% | -93.6% | 4,006 | -58.6% | -58.9% |
Unit revenue per ASK (€ cts) | 3.83 | -44.9% | -45.1% | 5.63 | -15.4% | -15.9% |
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
First half 2020 capacity w as dow n by 51.1%.
Capacity w as up by 2.4% for the months of January and February, the passenger network delivering a good performance with stable unit revenue at constant currency relative to the previous year.
The remainder of the first half w as significantly impacted by the Covid-19 public health crisis.
The impact of the Covid-19 crisis accelerated during March 2020, materially impacting global airline traffic. Repatriation operations took place across the world and a skeleton service was operated linking the Group's domestic markets to key cities. Follow ing the easing of border lockdow ns across Europe, there w as a slow resumption of traffic on the short- and medium-haul netw orks during June 2020.
The unit revenue per available seat-kilometer saw a material decline (-15.9%) at constant currency during the first half 2020, ow ing to the fall in load factors linked to the Covid-19 crisis.
First half financial report 2020 | Air France-KLM 8 |
Cargo business: strong yields due to the gap between industry capacity and demand
Second Quarter | First Half | |||||
Cargo | ||||||
2020 | Change | Change at | 2020 | Change | Change at | |
constant | constant | |||||
currency | currency | |||||
Tons (thousands) | 149 | -46.4% | 392 | -28.5% | ||
Capacity (ATK m) | 1,581 | -56.3% | 4,772 | -32.6% | ||
Traffic (RTK m) | 1,180 | -44.4% | 3,013 | -27.7% | ||
Load factor | 74.7% | +16.0 pt | 63.1% | +4.3 pt | ||
Total cargo revenues (€m) | 566 | +6.0% | +5.2% | 1,032 | -4.5% | -5.6% |
Scheduled cargo revenues (€m) | 491 | +8.2% | +7.4% | 890 | -4.0% | -5.1% |
Unit revenue per ATK (€ cts) | 31.06 | +147.6% | +145.7% | 18.65 | +42.4% | +40.8% |
At the end of the second quarter 2020, global air cargo capacity w as approximately 27% low er than in 2019, w ith industry air cargo load factors at their highest levels in the past tw o years.
Over the first half as a w hole, cargo capacity and traffic were significantly down due to the reduction in belly capacity in passenger aircraft. The increase in full freighter capacity partially offset the low number of passenger flights.
The load factor was up by 4.3 points and the unit revenue saw a strong 40.8% increase due to the gap betw een industry capacity and demand during the first half 2020.
On the demand side, w orldwide air freight volumes w ere down due to the Covid-19 crisis but are expected to rebound to 90% to 95% of their pre-Covid levels in 2021. The gap betw een capacity and demand in recent months should narrow as the industry increases its capacity.
Transavia: good start to the year for Transavia although the rest of the first half was materially impacted by the Covid-19 crisis
Second Quarter | First Half | |||
Transavia | ||||
2020 | Change | 2020 | Change | |
Passengers (thousands) | 90 | -98.2% | 2,439 | -68.8% |
Capacity (ASK m) | 277 | -97.1% | 5,169 | -66.3% |
Traffic (RPK m) | 181 | -97.9% | 4,636 | -67.2% |
Load factor | 65.3% | -26.7 pt | 89.7% | -2.3 pt |
Total passenger revenues (€m) | 17 | -96.6% | 259 | -65.0% |
Unit revenue per ASK (€ cts) | 5.47 | +4.4% | 4.74 | -1.9% |
Unit cost per ASK (€ cts) | 45.46 | +871.8% | 8.46 | +71.4% |
Operating result (€m) | -111 | -164 | -193 | -176 |
After a good start to the year for Transavia's low -cost business with unit revenues up by 10% at the end of February, the second half of March w as severely hit by the Covid-19 outbreak, w ith a consequential reduction in activity due to flight cancellations. Transavia France and Transavia Netherlands temporarily grounded the totality of their fleets. Activity levels were close to zero in April and May 2020 w ith a progressive restart fromearly June, resulting in an activity level for the month of June of 8% compared to last year.
Strict cash preservation measures are in place including a reduction in investment, cost savings, supplier payment deferrals and part-time w orking.
The first half 2020 operating result stood at €(193) million, a fall of €176 million relative to 2019 due entirely to the Covid-19 crisis.
First half financial report 2020 | Air France-KLM 9 |
Maintenance business: operating result strongly impacted by Covid-19
Second Quarter | First Half | |||||
Maintenance | ||||||
2020 | Change | Change at | 2020 | Change | Change at | |
constant | constant | |||||
currency | currency | |||||
Total revenues (€m) | 501 | -55.2% | 1,640 | -28.4% | ||
Third-party revenues (€m) | 222 | -57.8% | -59.3% | 716 | -33.8% | -36.0% |
Operating result (€m) | -318 | -370 | -376 | -321 | -419 | -430 |
Operating margin (%) | -63.4% | -68.1 pt | -68.5 pt | -19.6% | -23.9 pt | -24.3 pt |
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
Maintenance business revenues w ere sharply low er in the first half 2020 relative to the previous year: third-party revenues declined by 36% at constant currency, ow ing to the Covid-19 crisis. Revenues w ere significantly dow n in the three main businesses.
In the second quarter, all E&M business clients were affected by the Covid-19 crisis, resulting in a sharp decline in revenues. Operating costs werereduced in the second quarter 2020 thanks to a decline in the level of maintenance activity, partial pay ment schemes for employees and the initiation of other cost-saving measures.
An incidental loss of approximately €210 million w as taken in the second quarter operating result to take into account client situations including cash difficulties, fleet reductions and bankruptcies, and a spare part surplus due to the w orldwide fleet reductions expected as a result of the current crisis.
The E&M activity w as also materially impacted by the decline in airline activity w ithin the Air France-KLM Group. The operating margin, expressed as a percentage of total revenues, thus collapsed by 23.9 points .
Air France-KLM Group: Covid-19 severely impacts the financial results of the airline industry in the first half 2020
Second Quarter | First Half | |||||
Air France-KLM | 2020 | Change | Change at | 2020 | Change | Change at |
constant | constant | |||||
currency | currency | |||||
Capacity (ASK m) | 9,042 | -89.4% | 76,337 | -52.5% | ||
Traffic (RPK m) | 3,442 | -95.5% | 57,746 | -59.2% | ||
Passenger unit revenue per ASK* | 3.88 | -42.6% | -42.8% | 5.57 | -14.0% | -14.6% |
(€ cts) | ||||||
Group unit revenue per ASK (€ cts) | 9.31 | +27.8% | +27.3% | 6.73 | -4.5% | -5.2% |
Group unit cost per ASK (€ cts) at | 26.48 | +290.1% | +351.2% | 9.84 | +41.1 | +40.9% |
constant currency | ||||||
Revenues (€m) | 1,182 | -83.2% | -83.3% | 6,201 | -52.2% | -52.6% |
EBITDA (€m) | -780 | -1,947 | -1942 | -840 | -2,451 | -2,481 |
Operating result (€m) | -1,553 | -1,976 | -1972 | -2,368 | -2,505 | -2,537 |
Operating margin (%) | -131.4% | -137.4 pt | -137.3 pt | -38.2% | -39.2 pt | -39.5 pt |
Net income - Group part (€m) | -2,612 | -2,709 | -4,413 | -4,186 |
*Aggregate of Passenger network and Transavia unit revenues
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
First half financial report 2020 | Air France-KLM 10 |
The Air France-KLM fleet
At June 30, 2020, the Air France-KLM Group's fleet totalled 555 aircraft, versus 554 at December 31, 2019.
The main operational fleet w as composed of 414 aircraft (428 aircraft at December 31, 2019). The breakdow n of this fleet was
160 long-haul aircraft (176 at December 31, 2019), 6 freighters (6 freighters at December 31, 2019) and 248 medium-haul aircraft (246 at December 31, 2019), including 82 aircraft in the Transavia Group fleet (80 aircraft at December 31, 2019).
The regional fleet in operation w as composed of 104 aircraft (118 at December 31, 2019).
At June 30, 2020, the average age of the aircraft in the operational fleet w as 11.7 years, of which 11.8 years for the long-haul fleet, 12.7 years for the medium-haul fleet, 17.3 years for the cargo fleet and 8.9 years for the regional fleet, compared w ith 11.6 years at December 31, 2019, of w hich 11.9 years for the long-haul fleet, 12.3 years for the medium-haul fleet, 16.8 years for the cargo fleet and 9.6 years for the regional fleet.
At June 30, 2020, 38.9% of the total Group fleet w as fully owned (40.4% at December 31, 2019), 13.7% w as under finance lease (15.2% at December 31, 2019) and 47.4% under operating lease (44.4% at December 31, 2019).
At June 30, 2020, excluding operating leases and after the delivery of four aircraft under Group ownership, there were firmorders outstanding for 104 aircraft. Options stood at 58 aircraft (as on December 31, 2019).
Change in the Air France-KLM | December 31, | Deliveries | New | Option | June 30, 2020 | |
Group order book(1) | 2019 | during the | orders | conversion | ||
period(2) | ||||||
Main fleet | 108 | 4 | - | - | 104 | |
Regional fleet | - | - | - | - | - | |
Total | 108 | 4 | - | - | 104 | |
- Excluding operating leases.
- Excluding transfers between the Group's airlines.
Change in the Air France-KLM | December 31, | Exercized | Options | New options June 30, 2020 |
Group option portfolio(1) | 2019 | during the | cancelled or | |
period | expired |
Main fleet | 58 | - | - | - | 58 |
Regional fleet | - | - | - | - | - |
Total | 58 | - | - | - | 58 |
- Excluding operating leases.
Fleet management
Air France-KLMis pursuing a pro-active strategy of fleet renewal and modernization, thereby improving the fleet's energy efficiency and reducing its environmental footprint.
During the first half of 2020, the Air France Group thus:
- In long-haul, retired its ten A380s from operational service along with four A340s, and took delivery of three new A350- 900s,
∙ In HOP!, retired its ATR42s, ATR72s and EMB145s from operational service and took delivery of one new EMB190,
- In Transavia France, took delivery of tw o B737-800s.
For its part, KLM w elcomed an additional B787-10 to its fleet and retired its B747-400s from operational service.
Longer term, fleet modernization w ill be reflected in the ongoing grow th of the A350-900 fleet within Air France and that of the B787-10 at KLM. For its part, Transavia (France and the Netherlands) w ill see its fleet adapt to the grow th market in the leisure sector.
The Group w ill continue to invest significant sums in cabin refurbishment, as is currently the case for its A330 -200s and 777- 300ERs, and in the on-board satellite connectivity proposition, enabling an in-flightWi-Fi offer for customers.
First half financial report 2020 | Air France-KLM 11 |
The Air France-KLM fleet at June 30, 2020
AF | KL | Transavia | Transavia | Finance | Operating | |||||||||||||||
(incl. KLC & | Owned | Total | ||||||||||||||||||
(incl. HOP! ) | France | Neths. | lease | lease | ||||||||||||||||
Martinair) | ||||||||||||||||||||
Long-haul | 112 | 66 | 0 | 0 | 78 | 30 | 70 | 178 | ||||||||||||
B747-400 | - | 6 | - | - | 6 | - | - | 6 | ||||||||||||
B777-300 | 43 | 14 | - | - | 17 | 18 | 22 | 57 | ||||||||||||
B777-200 | 25 | 15 | - | - | 26 | - | 14 | 40 | ||||||||||||
A350 | 6 | - | - | - | 2 | 4 | - | 6 | ||||||||||||
B787-10 | - | 5 | - | - | 3 | 2 | - | 5 | ||||||||||||
B787-9 | 9 | 13 | - | - | 7 | 3 | 12 | 22 | ||||||||||||
A380-800 | 10 | - | - | - | 2 | 3 | 5 | 10 | ||||||||||||
A340-300 | 4 | - | - | - | 4 | - | - | 4 | ||||||||||||
A330-300 | - | 5 | - | - | - | - | 5 | 5 | ||||||||||||
A330-200 | 15 | 8 | - | - | 11 | - | 12 | 23 | ||||||||||||
Medium-haul | 115 | 52 | 40 | 42 | 70 | 20 | 159 | 249 | ||||||||||||
B737-900 | - | 5 | - | - | 2 | - | 3 | 5 | ||||||||||||
B737-800 | - | 31 | 40 | 35 | 29 | 10 | 67 | 106 | ||||||||||||
B737-700 | - | 16 | - | 7 | 3 | 5 | 15 | 23 | ||||||||||||
A321 | 20 | - | - | - | 11 | - | 9 | 20 | ||||||||||||
A320 | 44 | - | - | - | 3 | 5 | 36 | 44 | ||||||||||||
A319 | 33 | - | - | - | 14 | - | 19 | 33 | ||||||||||||
A318 | 18 | - | - | - | 8 | - | 10 | 18 | ||||||||||||
Regional | 73 | 49 | 0 | 0 | 62 | 26 | 34 | 122 | ||||||||||||
ATR72-600 | 2 | - | - | - | - | - | 2 | 2 | ||||||||||||
ATR42-500 | - | - | - | - | - | - | - | - | ||||||||||||
Canadair Jet 1000 | 14 | - | - | - | 14 | - | - | 14 | ||||||||||||
Canadair Jet 700 | 11 | - | - | - | 11 | - | - | 11 | ||||||||||||
Embraer 190 | 16 | 32 | - | - | 9 | 12 | 27 | 48 | ||||||||||||
Embraer 175 | - | 17 | - | - | 3 | 14 | - | 17 | ||||||||||||
Embraer 170 | 15 | - | - | - | 10 | - | 5 | 15 | ||||||||||||
Embraer 145 | 15 | - | - | - | 15 | - | - | 15 | ||||||||||||
Cargo | 2 | 4 | 0 | 0 | 6 | 0 | 0 | 6 | ||||||||||||
B747-400BCF | - | 1 | - | - | 1 | - | - | 1 | ||||||||||||
B747-400ERF | - | 3 | - | - | 3 | - | - | 3 | ||||||||||||
B777-F | 2 | - | - | - | 2 | - | - | 2 | ||||||||||||
Total AF-KLM | 302 | 171 | 40 | 42 | 216 | 76 | 263 | 555 | ||||||||||||
First half financial report 2020 | Air France-KLM 12 |
Highlights
Final results of Air France-KLM's tender offer on three series of existing notes
On January 6, 2020, the Air France-KLMGroup launched a Tender Offer to repurchase three series of existing notes subject to the success of a new issue of benchmark notes w ith a five-year maturity.
The three series of notes comprised, firstly, a €600 million principal amount of senior notes maturing on June 18, 2021 and bearing a fixed coupon of 3.875% (ISIN: FR0011965177), secondly €400 million in senior notes maturing on October 12, 2022 and bearing a fixed coupon of 3.750% (ISIN: FR0013212958) and, lastly, a €600 million initial principal amount of Undated Deeply Subordinated Fixed Rate Resettable Notes bearing a fixed coupon of 6.25%, of w hich €403.3 million is outstanding (ISIN: FR0012650281).
On January 10, 2020, after two days of investor road shows, Air France-KLMsuccessfully placed a new issueof senior notes (ISIN: FR0013477254) in the amount of €750 million, w ith a five-year maturity and bearing an annual coupon of 1.875%.
The net proceeds from this new issue were partly used for Air France-KLM's general corporate purposes and served to fund the repurchase of the notes subscribed to the cash Tender Offer, which closed on January 13, 2020 and whose results were announced on January 14, 2020, as follow s:
Existing Notes for a total principal amount of €677.7 million (representing 48.3% of the outstanding Existing Notes) were tendered to the Tender Offer, of which €350 million w ere accepted,composedof €311.2 million in 2021 Notes and €38.8 million in 2022 Notes.
As a result, the principal amount of outstanding Existing Notes after completion of the Tender Offer is €1,053.3 million, of which €288.8 million in 2021 Notes, €361.2 million in 2022 Notes and €403.3 million in subordinated perpetual notes.
The settlement and delivery of the Tender Offer combined withthe net proceeds on the new bonds issued took place on January 16, 2020. This transaction is part of the Company's ongoing dynamic management of the Group's balance sheet structure, contributing to reducing the overall cost of the Group's debt and extending its maturity profile.
International partnership between Air France, KLM, Delta and Virgin Atlantic
On February 3, Air France, KLM, Delta and Virgin Atlantic launched their expanded joint-venture at the service of their customers, enabling the latter to access new routes and benefit from new opportunities to earn and burn Miles.
Air France-KLM takes exceptional measures
On April 17, 2020, as Air France-KLMwas finalizingits 2019 Universal Registration Document, the Covid-19 crisis was continuing to spread.
Firstly, on December 31, 2019, the Group disposed of credit lines in the total amount of €1.765 billion. The tw o main credit lines amounted to €1.1 billion for the Air France-KLMholding company and Air France, and €665 million for KLM. As of the onset of the Covid-19 public health crisis, the Air France-KLMGroup implemented measures, notably cost savings, to limit the impact of the virus on its profitability and preserve its financial viability. Within this framework, the Air France-KLM Group drew down the totality of its
revolving credit facility in the amount of €1.1 billion and KLM drew down the totality of its revolving credit facility in the amount of €665 million. At March 12, the Group and its subsidiaries thus disposed of more than €6 billion of cash and cash equivalents.
Secondly, in the URD, the Group listed the measures that it had put in place since the onset of the Covid-19 crisis to ensure the protection of its passengers and staff, and to preserve the conditions of its financial viability. Faced w ith the increasingly strict
measures taken by many countries, including restrictions on travel opportunities and border closures, the Air France-KLM Group drastically reducedits flight activity w hich, over the coming months w as to stand at less than 10% of the previous year's level.
The Group took strong measures as of the onset of the crisis w hich, at April 17, included:
- negotiation w ith governments for payment deferral of taxes (civil aviation, solidarity, etc.),social contributions and various charges;
- negotiation w ith lessors and airports of payment deferral;
- cost reduction measures, estimated at this stage at €500 million in 2020, an increase of €300 million compared to previous announcements;
- the possibility of early retirement of certain sub-fleets of aircraft;
- implementation by Air France of part-time w orking measures and application by KLM of the Temporary Emergency Bridging
Measure for Sustained Employment (NOW), w ith an impact estimated at this stage at around €1.1 billion for 2020; - review of the investment plan w hich will be reduced by at least €700 million in 2020, i.e. €350 million more than in previous announcements, to w hich will be added the impact of the decline in ow n and third-party activity on the amount of maintenance investment.
In solidarity with all the employees, the members of the Air France-KLMBoard Directors, its Chair and its Chief ExecutiveOfficer also participated in the effort within the framework of the measures applicable to the employees of the Group, w ith a similar reduction in
First half financial report 2020 | Air France-KLM 13 |
their remuneration. On April 23, following the deliberation on the compensation of the Air France-KLM CEO, Benjamin Smith specified: "Iw ould like to highlight and repeat the commitment I made on March 16, 2020 to reduce my remuneration by 25% during the Covid-19 crisis. In the context of the very difficult period that the Air France-KLMGroup is currently going through, this reduction clearly includes forfeiting my annual short-term variable compensation ("bonus") for the financial year 2020, as well. Once again, I w ould like to thank all the Air France-KLMGroup's employees for their exceptional commitment at a time w hen our industry is going through the w orst crisis in its history."
Signature of €7 billion of financing enabling the Air France-KLM Group and Air France to weather the crisis and prepare for the future
On May 6, 2020, the Air France-KLM Group signed the legal documentation relating to the total €7 billion financing package, announced in its press release of April 24, 2020 and approved by the European Commission on May 4, 2020. This financingincludes tw o loans intended to finance the liquidity needs of Air France and its subsidiaries:
- A Loan Guaranteed by the French State ("PGE") granted by a syndicate of nine banks - Mandated Lead Arrangers and Book runners: Crédit Agricole CIB, HSBC France, Natixis (Documentation and Facility Agent); Senior Mandated Lead Arrangers: Deutsche Bank Luxembourg SA, Société Générale, Banco Santander Paris Branch; Mandated Lead Arrangers: BNP Paribas, Crédit Industriel et Commercial, Crédit Lyonnais (LCL) - w hose main characteristics are:
- an amount of €4 billion;
- a 90% guarantee granted by the French State;
- an initial 12-month maturity, w ith a one-year or tw o-year extension option exercisable by Air France-KLM;
- | a coupon excluding the French State guarantee cost at an annual rate equal to EURIBOR (floored at zero) plus a margin |
of 0.75% in the first year, 1.50% in the second year and 2.75% in the third year; |
- a cost of the guarantee granted by the French State initially equal to 0.5% of the total amount of the loan, and w hich w ill step up to 1% for each of the second and third years;
- a mandatory partial early repayment of 75% of any net new money raised by Air France-KLMor Air France fromfinancial institutions or through debt capital markets, subject to some exceptions;
- a mandatory total early repayment notably in case of change of control of Air France-KLM or Air France.
- A subordinated shareholder loan granted by the French State to Air France-KLM w hose main characteristics are:
- a bullet amount of €3 billion;
- a maturity of four years, w ith tw o consecutive one-year extension options exercisable by Air France-KLM;
- a coupon payable annually or capitalizable at the discretion of Air France-KLM at a rate equal to EURIBOR 12 months (floored at zero) plus a margin of 7% for the first four years, 7.5% for the fifth and 7.75% for the sixth. This rate w ill be increased by 5.5% step up in case (i) the general assembly would not approve a capital increase proposed by the Board of Directors that w ould enable incorporation in the company's shareholder equity of all or part of the outstanding shareholder loan, (ii) the general assembly w ould approve, w ithout the approval from the French State, a capital increase w hich would not enable the incorporation of all or part the outstanding shareholder loan in the company's shareholder equity or (iii) a third party, not acting in concert w ith the French State, w ould exceed, alone or in concert, the threshold of 20% of the capital of Air France-KLM;
- subordination to the French State guaranteed bank loan and, in the event of receivership or liquidation, to all the Air France-KLM senior bond and bank debt, w ithout prejudice of an incorporation of all or part the outstanding shareholder loan in the company's shareholder equity; and
- early repayment in the occurrence of certain events, such as the takeover of Air France-KLMand cases of default such as if the Annual General Meeting of shareholders does not ratify this shareholder loan according to article L.225 -40 of the French Code de commerce or in case of acceleration of the French State guaranteed bank loan. The company has undertaken not to pay dividends until these tw o loans have been repaid in full. Consecutive to this financing, Air France- KLM w ill reimburse €1.1 billion on May 7, 2020 for the revolving credit facility draw n in March 2020 and w ill terminate it. Discussions w ith the Dutch State are pursuing to finalize additional support to the KLM Group.
KLM secures loans of €3.4 billion to help it weather the crisis and prepare for the future
On June 25, 2020, the Air France-KLMGroup's Board of Directors approved a financial support package backed by the Dutch State for KLMin the amount of €3.4 billion. These loans w ill enable KLMto w eather the current Covid-19 crisis and prepare for the future.
The Dutch State aid to KLM came in addition to the €7 billion in funding granted by the French State to Air Franceannounced on May 7, 2020. Follow ing discussions with the Dutch State and several Dutch and international banking institutions, the Air France-KLM Group and KLM w ere able to finalize the various components of a financial support package. This financing includes two loans for KLM and its subsidiaries:
- A revolving credit facility of €2.4 billion, granted by 11 banks, of w hich three are Dutch banks and eight are international banks. The main characteristics are:
- A 90% guarantee granted by the Dutch State w ith a maturity of 5 years and a coupon at an annual rate equal to EURIBOR (floored at zero) plus a margin of 1.35%
- A cost of the guarantee granted by the Dutch State equal to 0.50% in year one, 1.00% in year two and three, and 2.00% after year three.
First half financial report 2020 | Air France-KLM 14 |
- A direct loan of €1 billion, granted by the Dutch State to KLM, w ith the follow ing main characteristics:
- Term loan of €1 billion
- A maturity of 5.5 years
- A coupon payable annually at a rate equal to EURIBOR 12 months (floored at zero) plus a margin of 6.25% for year one, 6.75% for year tw o and three, and 7.75% for year four and five.
- Subordination to the new revolving credit facility. Both the revolvingcredit facility and the direct loan will be drawn on a pro rata basis. Further drawings subsequent to the first drawing are subject to certain conditions being fulfilled by KLM.
KLM's first draw down under the new revolving credit facility will be used to repay and terminate the existing revolving credit facility draw n on March 19, 2020 for an amount of €665 million.
The conditions associated with the direct State loan are linked to the airline becoming more sustainable as well as the restored performanceand competitiveness of KLM, including a comprehensive restructuring plan and contributions made by employees. KLM has undertaken to suspend dividend payments to its shareholders until these two loans have been repaid in full. These support mechanisms have been approved by the Dutch Parliament and the European Commission.
KLM 2020 Voluntary Resignation Scheme
Although numerous measures havebeen taken to help KLMtraverse this period of unprecedented difficulty,within this context where it is clear that more is needed, on May 20, 2020 KLM announced that, given the impact of the Covid-19 crisis, it w as expanding the possibility for employees to leave the company on a voluntary basis w ith financial compensation.
The 2020 Voluntary Resignation Scheme (VRS 2020) has been open to all KLM employees since June 1 and anticipates the necessary next steps. The new scheme could create more roomfor KLM employees w ho remain in service, thereby limiting forced redundancies as far as possible in the future.
The Air France Group plans measures to adapt its workforce to the Covid-19 crisis
On July 3, Air France and HOP! presented to their staff representatives their strategic orientations and the prospects for adapting the w orkforce followingthe Covid-19 crisis which has hit the Group hard. For three months, Air France's activity and revenue was down by 95%, and at the height of the crisis, the airline w as losing €15 million per day. The recovery looks set to be very slow due to the many uncertainties regarding the health situation, the lifting of travel restrictions and the trend in commercial demand. In this way,
even on the basis of ambitious recovery assumptions, Air France predicts that it will not see the same level of activity as in 2019 before 2024.
The support of the French State,in the formof guaranteed loans amounting to €7 billion euros, will enable the Group to withstand the crisis in the short term and is accompanied by strong commitments to ensure its sustainability. Air France must accelerate its transformation to regain its competitiveness and strengthen its leadership in terms of sustainable transition. In the context of such a lasting decline in activity,the Air France Groupmust act with lucidity andresponsibility.Its transformation is mainly bas edon changing its domestic business model, reorganizing its support functions and continuing to reduce its external and internal costs.
For Air France, the projections on staff requirements show a reduction of 6,560 jobs by the end of 2022out of a current total of 41,000. The many natural departures expected over this period (more than3,500) will make it possible to compensate more than half of these job reductions thanks to a favorable age pyramid.
For HOP! the resizing of activity and the restructuring of the company linked in particular to the simplification of the fleetwill lead to a reduction of 1,020 jobs over the next three years out of the current 2,420. Taking into account the estimated number of natural departures, the overstaffing figure remains at around 820 at the end of 2022.
Air France and HOP!are working togetherwith the unions to implement plans thatgive priority to voluntary departures, early retirement arrangements and professional and geographical mobility. Solidarity w ithin the Air France Group w ill also be implemented with proposals for internal job offers to all employeeswhose positionwill no longer exist andwho do notwish to beincludedin the departure plan.
Air France and HOP! w ill conduct these processes in a spirit of dialogue, and w ith responsibility and transparency around the challenges of rebuilding the Air France Group.
Phase-out of Air France's entire Airbus A380 fleet
In the context of the Covid-19 crisis and its impact on anticipated activity levels, on May 20, 2020 the Air France-KLM Group announced the termination of Air France's Airbus A380 operations.
Initially scheduled by the end of 2022, the phase-out of the Airbus A380 fleet is an integral part the Air France-KLM Group's fleet
simplification strategy aimed at making the fleet more competitive and continuing its transformation w ith more modern, high - performance aircraft w ith a significantly-reduced environmental footprint.
Five of the Airbus A380s in the current fleet are owned by Air France or on financelease, while the four others are on operating lease.
The overall impact of the Airbus A380 phase-outwrite-down amounting to €545 million was booked in the first half 2020 as a non- current expense.
The Airbus A380s will be replaced by new -generation aircraft, like the Airbus A350 andthe Boeing 787, whose deliveries are ongoing.
First half financial report 2020 | Air France-KLM 15 |
Air France-KLM's Corporate Social Responsibility Report 2019
The Group's 100%-digital Corporate Social Responsibility Report, available on the www.airfranceklm.com website since June 2, presents the Group's strategy and commitments, and all the actions undertaken by the Group in 2019 as part of its transition to a sustainable future. For 15 years, the Air France-KLMGroup has been recognized as a leader in the sustainable transition of the air transport industry. In 2019, its commitments were once again recognized by the Dow Jones Sustainability Index, which ranked the Air France-KLM Group in first place.
After achieving its 2020 targets ahead of schedule, in 2019 Air France-KLMset ambitious new targets to reduceits carbon footprint by 2030, with a 50% reduction in CO2 emissions per passenger/km compared with 2005 levels. Within the context of the Covid-19
global health crisis, the transformation of the Air France-KLMGroup involves accelerating its environmental goals for its own future and for that of the entire industry.
First half financial report 2020 | Air France-KLM 16 |
Outlook and subsequent events
Outlook
The Group has introduced stringent sanitary measures on board and, supported by the ongoing "Travel w ith Confidence" campaign, has seen a slow recovery of leisure demand in June 2020.
The airlines of the Group are carefully increasing capacity for the summer months , w hereby overall capacity levels are managed based on continuously scrutinizing developments in market demand and government policies, including the opening of borders and slot moratoriums. The Group aims to rebuild its w orldwide network step by step with a w ide variety of destinations in the portfolio.
Nevertheless, there is limited visibility on the demand recovery curve as customer booking behavior is much more short-term oriented than before the Covid-19 crisis, especially on the Long-haul netw ork.
On this basis the Group expects:
- Capacity in Available Seat kilometers at index 45 for the third quarter 2020 and at index 65 for the fourth quarter 2020 compared to last year.
- Negative load factor developments for the third quarter 2020, particularly on the Long-haul netw ork, and anticipates negative yield mix effects due to a delayed recovery of business compared to leisure motive traffic .
The Group foresees significantly negative EBITDA in the second half year 2020.
The French and the Dutch governments have provided financial packages w ith conditions attached to increase competitiveness and achieve sustainability objectives. Thus, at June 30, 2020, the Air France-KLM Group has €14.2 billion of liquidity or credit lines at its disposal to w eather the crisis and restructure its business.
Foreseen incidental elements w ith cash-impact in second half 2020:
- Working Capital risk due to cash refunds of pre-paid ticket revenues estimated at €1.6 billion
- Repayment of the currently draw n KLM revolving credit facilities; €0.7 billion
- The Hybrid bond w ith an outstanding principal; amount of €0.4 billion is intended to be repaid in full, the Group is considering refinancing options.
The Group has further reduced its capital expenditure plan for 2020 by an additional -€0.3 billion to €2.1 billion. This is a reduction of -€1.5 billion compared to the initial 2020 guidance of €3.6 billion.
Subsequent events
Air France restructuring plan for cabin crew and ground staff
On July 6, 2020, during the meeting of the Social Economic Establishment Committee ("CSEE") Flight Operations, the management of Air France presented the proposed mutual agreement on termination of contract ("RCC") for cabin crew .
On July 24, 2020, during the meeting of the Social Economic Central Committee ("CSEC"), the management of Air France presented the proposed voluntary departure plan for ground staff.
At this stage, the impact of these decisions is estimated at €(430) million and w ill be accounted for in "other non-current income and expenses" during the third quarter of 2020.
Financial support package of €7.0 billion backed by the French State
As of July 16, 2020, Air France-KLM drew down €1 billion from the bank loan guaranteed by the French State follow ed by €1 billion on July 30, 2020. Thus, as of July 30, 2020, the planned €4 billion had been draw n dow n.
First half financial report 2020 | Air France-KLM 17 |
Risk factors
The risk factors to w hich the Air France-KLM Group is exposed are those outlined in the 2019 Universal Registration Document filed w ith the AMF on April 17, 2020. Next to the structural risks the Group is facing, the Universal Registration Document presents the emerging risk of Covid-19 and other epidemics or threats of epidemics. Emerging Risks are unanticipated risks w hich potential impact is not fully know n or quantifiable but can transform the very nature of a company's business model.
Covid-19 appeared to be an emerging risk, forcing the Group to drastically and rapidly reduce its passenger activities in the second quarter 2020 and resulting in a severe drop in its revenues and results (see the Business Review section of this report). As of June 2020, the Group has benefited from a financial support package backed by the French and Dutch State of €10.4 billion to w eather the crisis and prepare for the future.
As of the date of this document, the Group has identified the following risks as Covid-19-related risks with the highest potential impact:
- Corporate Demand: risk of a slow return of intercontinental business traveller. Uncertainty of short-, medium- and long-term recovery of business and leisure travel. Risk of impact of second or enduring Covid-19 wave.
- Travel Restrictions between countries and states: risk of ad hoc and more structural health measures and travel and/or entrance restrictions enforced by a large number of countries .
- Airport Charges and Cost Levels: risk of increasing levels of airport charges, air traffic control charges and external costs.
- Overcapacity in the MRO (Maintenance, Repair and Overhaul) industry: risk of additional pressure on competitiveness, drop in prices and loss of profitability on sales.
- Fuel hedging: risk of fuel hedge not compensated by fuel costs.
- Weak Balance Sheet: caused by significant decrease in revenues and high fixed costs. Risk of more difficult and expensive financing for future plans, risk of cash shortage and negative equity, significant increase in indebtedness (The net cost of financial debt amounted to €(203) million as of June 30, 2020).
- Overcapacity of staff: due to the decrease in travel an imbalance betw een demand and capacity has emerged. Staff levels (flight deck, cabin crew and ground) need to be adjusted accordingly.
- Slot losses: risk of obligation to fly the slots again after current waiver, while demand has not yet recovered. Risk of extra costs versus risk of losing slots. In order to keep the slots, risk of extra costs due to the obligation to fly, but w ith significant low er level of passengers, versus the risk of losing the slots if w e do not fly.
- Long delays and turnaround times: due to compliance w ith new governmental requirements risk of long turnarounds and inefficient use of aircraft and staff capacity.
- Environmental Footprint requirements related to State loans: risk of not being able to fulfil the conditions for the loans from the French and Dutch States on sustainability and liveability. Risk of higher costs or competitive disadvantage compared to competition w ithout those conditions.
The occurrence of some or all of these risks could have a significant and adverse effecton the Group's activity, financial situation, reputation, results and outlook.
In accordance with its risk management policy, the Group implements dedicated initiatives to manage these risks in a fast -moving and unprecedented environment. These initiatives include, among others, the financial loans and guarantees granted by the French and Dutch States, cost-saving actions, partial unemployment (e.g. Activité Partielle in France and NOW program in the Netherlands, the temporary emergency bridging measure for sustained employment), a hiring freeze, not extending temporary contracts, voluntary departure plans, deferral of expenses, ongoing discussions with suppliers (including airports and air traffic controls), flexibility measures in the netw ork, schedules and operational processes, active involvement in and alignment w ith governments and industry platforms, ongoing fleet renew al (e.g. w ithdraw al of the A380s from the fleet).
Related parties
The information concerning related parties can be found in Note 30 to the consolidated financial statements.
First half financial report 2020 | Air France-KLM 18 |
1.2 Corporate governance
The Board of Directors
At June 30, 2020, the Board of Directors w as composed of nineteen members, of w hom:
- Sixteen Board directors appointed by the General Shareholders' Meeting1;
- One representative of the French State appointed by ministerial order 2; and
- Tw o representatives of the employees, one of w homappointed by the Comité de Groupe Français3 and the other appointed by the European Works Council.
During the first half 2020, the composition of the Board of Directors saw a number of changes, as show n in the follow ing table.
( 1)Conf ormément article6'là edordonance'l°n1402948du20- oûta 14relat02 eàlavi ouveranceg texuapérationssurleoapitaldessociétésc àpar pationpubliqueict .
Departure | Appointment | Re-appointment | Ratification of the |
co-optation | |||
Jaap de Hoop Scheffer | Dirk van den Berg(1) | Anne-Marie Couderc(2) | Jian Wang (4) |
AGM of May 26, 2020 | AGM of May 26, 2020 | Independent director | AGM of May 26, 2020 |
AGM of May 26, 2020 | |||
Alexander Wynaendts (3) | |||
Independent director | |||
AGM of May 26, 2020 |
- Mr. Dirk van den Berg w as appointed by the Air France-KLM Annual General Shareholders' Meeting of May 26, 2020 for a four-year term of office as proposed by the Dutch State, pursuant to the 2003 governance agreements.
- The mandate of Ms. Anne-Marie Couderc, Chair of the Board of Directors and an independent director, w as renewedby the Air France-KLM Annual General Shareholders' Meeting of May 26, 2020 for a four -year term of office, i.e. until the
Shareholders' Meeting convened to approve the financial statements for the financial year ending December 31, 2023. - The mandate of Mr. Alexander Wynaendts, an independent director, w as renewed by the Air France-KLM Annual General
Shareholders' Meeting of May 26, 2020 for a four-year term of office, i.e. until the Annual General Shareholders' Meeting convened to approve the financial statements for the financial year ending December 31, 2023. - Follow ing the resignation of Mr. Bing Tang, as of that same day, Mr. Jian Wang, w hose appointment had been proposed by China Eastern Airlines, w as co-opted as a Board director by the Air France-KLMBoard of Directors on July 30, 2019, for his predecessor's remaining term of office, i.e. until the end of the Air France-KLM Annual General Shareholders' Meeting convened to approve the financial statements for the financial year ending December 31, 2020. On May 26, 2020, the Air France-KLM Shareholders' Meeting ratified this co-optation.
- Including tw o Board directors appointed as proposed by the French State and tw o Board directors representing the employee shareholders.
- Pursuant to Article 4 of Ordinance No. 2014-948 of August 20, 2014 relating to governance and transactions involving the share capital of State-ow ned companies.
- In application of the provisions of Article L. 225-27-1 of the Code de Commerce and Article 17-3 of the Articles of Incorporation.
First half financial report 2020 | Air France-KLM 19 |
Composition of the Board of Directors at June 30, 2020
Board directors | Functions within the | Date appointed to the | Mandate expiry | Independence | ||
(age at June 30, 2020 | Board of Directors | Board of Directors | date | |||
and nationality) | ||||||
Board directors elected by the Shareholders' Meeting | ||||||
Anne-Marie Couderc | Chair of the Air France- | May 19, 2016 | 2024 AGM | ✓ | ||
(70 years) | KLM Board of Directors | |||||
French | Board director | |||||
Chair of the | ||||||
Appointments and | ||||||
Governance Committee | ||||||
Benjamin Smith | Board director | December 5, 2018 | 2023 AGM | |||
(48 years) | ||||||
British and Canadian | ||||||
Maryse Aulagnon | Board director | July 8, 2010 | 2021 AGM | ✓ | ||
(71 years) | Chair of the Audit | |||||
French | ||||||
Committee and member | ||||||
of the Remuneration | ||||||
Committee | ||||||
Leni M.T. Boeren | Board director | May 16, 2017 | 2021 AGM | ✓ | ||
(56 years) | Member of the Audit |
Dutch | Committee and of the |
Sustainable | |
Development and | |
Compliance Committee |
Isabelle Bouillot (71 years) French
Board directorMay 16, 20132021 AGM✓
Interim Chair of the Remuneration Committee and member of the Audit Committee
Delta Air Lines, Inc. | Board director | October 3, 2017 | 2021 AGM | |
(Represented by Mr. | Member of the Audit | |||
George Mattson) | ||||
Committee and of the | ||||
U.S. | ||||
Remuneration | ||||
Committee | ||||
Cees 't Hart | Board director | May 28, 2019 | 2023 AGM | |
(62 years) | ||||
Dutch | ||||
Anne-Marie Idrac | Board director | November 2, 2017 | 2021 AGM | ✓ |
(68 years) | Chair of the Sustainable | |||
French | ||||
Development and | ||||
Compliance Committee | ||||
Isabelle Parize | Board director | March 27, 2014 | 2022 AGM | ✓ |
(63 years) | Member of the | |||
French | ||||
Remuneration | ||||
Committee and of the | ||||
Audit Committee | ||||
Jian Wang | Board director | July 30, 2019 | 2021 AGM | |
(52 years) | Member of the | |||
Chinese | Sustainable | |||
Development and | ||||
Compliance Committee | ||||
Alexander R. | Board director | May 19, 2016 | 2024 AGM | ✓ |
Wynaendts | Member of the | |||
(59 years) | ||||
Appointments and | ||||
Dutch | ||||
Governance Committee | ||||
Dirk van den Berg | Board director | May 26, 2020 | 2024 AGM | |
(66 years) | ||||
Dutch |
Board directors elected by the Shareholders' Meeting as proposed by the French State
First half financial report 2020 | Air France-KLM 20 |
Jean-Dominique | Board director | December 14, 2010 | 2023 AGM |
Comolli | Member of the | ||
(72 years) | |||
Remuneration | |||
French | |||
Committee and of the | |||
Appointments and | |||
Governance Committee | |||
Astrid Panosyan | Board director | May 28, 2019 | 2023 AGM |
(48 years) | |||
French |
Board directors representing the employee shareholders elected by the Shareholders' Meeting
Paul Farges | Board director | May 15, 2018 | 2022 AGM | |
(49 years) | representing the | |||
French | employee shareholders | |||
(flight deck crew | ||||
category) | ||||
Member of the Audit | ||||
Committee | ||||
François Robardet | Board director | December 6, 2016 | 2022 AGM | |
(62 years) | representing the | |||
French | employee shareholders | |||
(ground staff and cabin | ||||
crew category) | ||||
Member of the Audit | ||||
Committee and of the | ||||
Remuneration | ||||
Committee | ||||
Board director representing the French State appointed by ministerial order | ||||
Martin Vial | Board director | May 31, 2019 | May 2023 | |
(66 years) | representing the French | |||
French | State | |||
Member of the Audit | ||||
Committee | ||||
Board director representing the employees appointed by the Comité de Groupe Français | ||||
Karim Belabbas | Board director | June 1, 2017 | 2021 AGM | |
(46 years) | representing the | |||
French | employees | |||
Member of the | ||||
Sustainable | ||||
Development and | ||||
Compliance Committee | ||||
Board director representing the employees appointed by the European Works Council | ||||
Mathi Bouts | Board director | October 10, 2017 | 2021 AGM | |
(61 years) | representing the | |||
Dutch | employees |
Member of the
Sustainable
Development and
Compliance Committee
First half financial report 2020 | Air France-KLM 21 |
The CEO Committee
The CEO Committee is chaired by Mr. Benjamin Smith, Chief Executive Officer of Air France-KLM, and has three other members reporting directly to Mr. Smith:
- Ms. Anne Rigail, Chief Executive Officer of Air France;
- Mr. Pieter Elbers, President & Chief Executive Officer of KLM; and
- Mr. Frédéric Gagey, Chief Financial Officer of Air France-KLM.
During its meeting of February 19, 2019, the Air France-KLMBoard of Directors appointed Ms. Anne Rigail and Mr. Pieter Elbers Deputy Chief Executive Officers.
Ths CEO Committee is responsible for determining the strategic direction of all the Group's airlines and operational entities .
First half financial report 2020 | Air France-KLM 22 |
The Group Executive Committee
Composition of the Group Executive Committee at June 30, 2020
Chaired by the Chief Executive Officer of Air France-KLM, the Group Executive Committee is composed of tw elve members and a secretary:
- The Chief Executive Officer of Air France-KLM, the Chief Executive Officer of Air France and the President & Chief Executive Officer of KLM; and
- The nine heads of the Group's functions.
Relevant | |||
Age at | professional | ||
Members at June 30, 2020 | June 30, 2020 | Sector | experience |
Benjamin Smith | 48 years | Air Transport | 29 years |
Chief Executive Officer, Air France-KLM | |||
Pieter Elbers | 50 years | Air Transport | 27 years |
President & Chief Executive Officer, KLM | |||
Anne Rigail | 50 years | Air Transport | 28 years |
Chief Executive Officer, Air France | |||
Frédéric Gagey | 64 years | Public service | 7 years |
Chief Financial Officer, Air France-KLM | Air Transport | 26 years | |
Patrick Alexandre (1) | 65 years | Air Transport | 38 years |
Executive Vice-President Commercial Sales, | |||
Air France-KLM | |||
Pieter Boostma | 50 years | Air Transport | 24 years |
Chief Revenue Officer, Air France-KLM | |||
Anne Brachet | 56 years | Air Transport | 24 years |
Executive Vice-President, Engineering & Maintenance, | |||
Air France-KLM | |||
Angus Clarke | 45 years | Air Transport | 19 years |
Executive Vice-President, Strategy, Air France-KLM | |||
Janet Dekker | 60 years | Human Resources | 31 years |
Executive Vice-President, Human Resources, | |||
Air France-KLM | |||
Adriaan den Heijer | 50 years | Air Transport | 25 years |
Executive Vice-President, Cargo, Air France-KLM | |||
Jean-Christophe Lalanne | 58 years | Industry, IT | 22 years |
Executive Vice-President, Information Technology, | Air Transport | 15 years | |
Air France-KLM | |||
Anne-Sophie Le Lay | 49 years | Law yer | 7 years |
Corporate Secretary, Air France-KLMand Air France | Legal/Governance | 18 years | |
Automotive industry | |||
Air Transport | 2 years and 4 | ||
months | |||
Secretarial services to the Group Executive Committee are provided by the Air France-KLM Chief Executive Officer's Chief of Staff.
- Until June 30, 2020. Mr. Henri de Peyrelongue w as appointed Executive Vice-President Commercial Sales, Air France-KLM, as of July 1, 2020.
First half financial report 2020 | Air France-KLM 23 |
Stock market and shareholder structure
Air France-KLM shares are listed for trading on the Paris and Amsterdam Stock Markets (Euronext Paris and Amsterdam) under the ISIN code FR0000031122. The stock is a component of the SBF 120.
Since February 2008, Air France-KLM's ADR program (American Depositary Receipt) has been traded on the OTC Pink Marketplace under the ticker AFLYY. The Reuters code for the stock is AIRF.PA or AIRF.AS and the Bloomberg code AF FP.
Pursuant to Article 222-1 of the Autorité des Marchés Financiers (AMF) General Regulation, since the registered office for Air France-KLM is located in France, its Home Member State, w ithin the meaning of Directive 2004/109/EC of December 15, 2004, as amended (the Transparency Directive), is France. The AMF is consequently its competent market authority as regards ensuring compliance w ith its regulated information obligations.
Stock market performance
Over the first half 2020, the Air France-KLM stock price decreased by 61%.
January-June 2020 | January-June 2019 | |
Share price high (In €) | 10.25 | 12.73 |
Share price low (In €) | 3.60 | 7.46 |
Number of shares in circulation | 428,634,035 | 428,634,035 |
Market capitalization at the end of the period (In € billion) | 1.73 | 3.62 |
Information relating to the share capital
At June 30, 2020, the Air France-KLM share capital w as composed of 428,634,035 shares w ith a nominal value of one euro.
Period ended | June 30, 2020 | June 30, 2019 |
Number of shares in circulation | 428,634,035 | 428,634,035 |
Number of theoretical voting rights | 586,779,109 | 503,812,330 |
Number of exercizable voting rights | 550,084,221 | 501,549,531 |
Share capital (in €) | 428,634,035 | 428,634,035 |
The shares are fully paid up and shareholders can opt to hold them in either registered or bearer form. Until April 2, 2016, each share had one voting right attached. As fromApril 3, 2016, in application of the "Florange" Act and in view of no provision to the contrary in the Air France-KLM Articles of Incorporation, all fully paid-up shares held in registered form in the name of the same shareholder for at least tw o years automatically benefit from a double voting right. There are no other specific rights attac hed to the shares.
Furthermore, there are no securities not representing the share capital.
Shareholder structure
% of theoretical voting | % of exercisable voting | ||||||
% of the share capital | rights | rights | |||||
June 30 | December 31 June 30 | December 31 | June 30 | December 31 | |||
Period ended | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |
Number of shares in | |||||||
circulation/voting rights | 428,634,035 | 428,634,035 | 550,084,221 | 550,280,634 | 586,779,109 | 586,975,522 | |
French State | 14.3% | 14.3% | 22.3% | 22.3% | 20.9% | 20.9% | |
Dutch State | 14.0% | 14.0% | 10.9% | 10.9% | 10.2% | 10.2% | |
Delta Air Lines, Inc. | 8.8% | 8.8% | 10.5% | 10.5% | 12.8% | 12.8% | |
China Eastern Airlines | 8.8% | 8.8% | 10.5% | 10.5% | 12.8% | 12.8% | |
Donald Smith & Co, Inc. | 3.9% | 5.2% | 3.0% | 4.1% | 2.8% | 3.8% | |
Employees (FCPE) | 3.7% | 3.8% | 5.8% | 5.9% | 5.4% | 5.5% | |
Treasury stock | 0.3% | 0.3% | - | - | 0.4% | 0.4% | |
Others | 46.2% | 44.8% | 37.0% | 35.9% | 34.7% | 33.6% | |
First half financial report 2020 | Air France-KLM 24 |
At June 30, 2020, more than 50% of Air France-KLM's share capital was owned by European interests - European Union Member States and States party to the European Economic Area Agreement.
Since March 26, 2020, the date on w hich the shareholder structure of Air France-KLMwas presented in the Universal Registration Document, Causew ay Capital Management LLC has reduced its equity interest and fallen below the 5% threshold. It is thus no longer represented in the Air France-KLM shareholder structure table.
First half financial report 2020 | Air France-KLM 25 |
Comments on the financial statements
Consolidated results for the first half ended June 30, 2020
Compared w ith December 31, 2019, the Air France-KLM Group's consolidation scope at June 30, 2020 show ed no significant change (see Note 5 in the Notes to the financial statements).
In € million | June 30, 2020 | June 30, 2019(1) | Change (In %) |
Revenues | 6,201 | 12,963 | -52 |
EBITDA | (840) | 1,610 | na |
Income/(loss) fromcurrent operations | (2,368) | 137 | na |
Income/(loss) fromoperating activities | (3,198) | 130 | na |
Net income/(loss) - Equity holders of Air France-KLM | (4,413) | (227) | na |
Basic earnings/(loss) per share - Equity holders of Air France- | |||
KLM (In €) | (10.35) | (0.55) | na |
- The 2019 financial statements have been restated for the component approach on Limited Life Parts and customer compensation. See Note 2 in the notes to the half-year consolidated financial statements.
Revenues
In the first half 2020, in view of Covid-19, revenues stood at €6.2 billion versus €12.96 billion in 2019, dow n by 52% in nominal and 53% at constant currency.
Operating expenses
Operating expenses stood at €8.6 billion, i.e. dow n by 33% given the reduction in activity . For capacity measured in ASK down by 52.5%, the unit cost per ASK (available seat-kilometer) increased by 40.9% on a constant currency and fuel price basis (see page 33 for the detailed unit cost calculation).
At €4.4 billion, external expenses declined by 43% (€7.3 billion one year earlier).
First half financial report 2020 | Air France-KLM 26 |
The breakdow n in operating expenses w as as follow s:
June 30, 2020 | June 30, 2019 | Change at | ||
restated | Change (in %) | constant | ||
currency (in %) | ||||
In € million | ||||
Aircraft fuel | 1,397 | 2,605 | -46 | -48 |
Chartering costs | 114 | 269 | -58 | -58 |
Landing fees and air route charges | 478 | 941 | -49 | -50 |
Catering | 178 | 395 | -55 | -55 |
Handling charges and other operating costs | 441 | 840 | -48 | -48 |
Aircraft maintenance costs | 912 | 1,296 | -30 | -31 |
Commercial and distribution costs | 230 | 517 | -56 | -56 |
Other external expenses | 673 | 872 | -23 | -24 |
Total | 4,423 | 7,735 | -43 | -44 |
The main changes w ere as follow s:
- Aircraft fuel: The fuel bill decreased by 48% (at constant currency). This is explained by a €1,003 million decrease caused by the volume effect, a €169 million decrease in the price after hedging, a fuel efficiency effect (+€49 million) and a fuel hedge impact of +€233 million, all impacted by the Covid-19 crisis.
- Chartering costs: chartering costs represent the costs incurred through leasing aircraft capacity from other airlines. Their reduction is mainly explained by the Covid-19 crisis.
- Landing fees and air route charges: landing fees and air route charges for the use of airspace and airports decreased at current currency in line w ith the reduction in capacity;
- Catering costs relating to services supplied on board the Air France-KLMGroup's aircraft for its own account. The decrease at constant currency w as in line w ith the fall in the number of passengers carried.
- Handling charges and other operating costs principally cover aircraft handling on the ground and the cost of passenger care for the Group and, for a small portion, third-party customers.
- Aircraft maintenance costs include the maintenance of the Group's aircraft and procurement for the third-party activity. Their decrease is linked to the Covid-19 crisis.
- Other external expenses principally comprise telecommunication costs, insurance, fees and general and IT sub-contracting costs.
Salaries and related costs stood at €2.93 billion versus €4.02 billion at June 30, 2019, i.e. dow n by 27% in nominal. Their decrease is due to the collapse in activity and the government support policies in both France and the Netherlands .
Taxes other than income taxes amounted to €80 million versus €93 million at June 30, 2019.
Other income and expenses (+€393 million at June 30, 2020 versus +€495 million at June 30, 2019) w ere composed of:
- Capitalized maintenance and IT development costs amounting to €349 million as of June 30, 2020 against €523 million as of June 30, 2019.
- Currency hedges for €65 million at June 30, 2020 versus €12 million at June 30, 2019,
- A €20 million expense booked concerning CO2 emission quotas (€28 million in the previous year).
First half financial report 2020 | Air France-KLM 27 |
EBITDA
EBITDA amounted to €(840) million (€1,610 million at June 30, 2019).
The contributions to EBITDA by business segment w ere as follow s:
In € million | First half 2020 | First half 2019 | % change |
Netw ork | (790) | 1,225 | -164 |
Maintenance | 9 | 268 | -97 |
Transavia | (67) | 99 | -168 |
Others | 8 | 18 | -56 |
Total | (840) | 1,610 | -152 |
Amortization, depreciation and provisions
Amortization, depreciation and provisions totaled €1,528 million versus €1,473 million at June 30, 2019.
Income/(loss) from current operations
The result from current operations amounted to €(2,368) million (€137 million at June 30, 2019).
The contributions to revenues and income/(loss) from current operations by business segment w ere as follow s:
June 30, 2020 | June 30, 2019 | |||
Income/(loss) from | Income/(loss) from | |||
In € million | Revenues | current operations | Revenues | current operations |
Netw ork | 5,216 | (1,852) | 11,126 | 54 |
Maintenance | 716 | (321) | 1,081 | 98 |
Transavia | 259 | (193) | 741 | (17) |
Others | 10 | (2) | 15 | 2 |
Total | 6,201 | (2,368) | 12,963 | (137) |
Income/(loss) from operating activities
The result from operating activities stood at €(3,198) million versus €130 million at June 30, 2019. Non-current items w hich amounted to €(830) million at June 30, 2020 w ere composed of:
- A €24 million gain on the sale of aircraft equipment,
- Other non-current income and expenses amounting to €(854) million (see Note 11 in the notes to the consolidated financial statements), including mainly restructuring provisions and costs amounting to €(226) million and fleet impairments amounting to €(639) million.
Net cost of financial debt
The net cost of financial debt amounted to €(203) million versus €(194) million at June 30, 2019.
Other financial income and expenses
Other net financial income and expenses amounted to €(733) million versus €(133) million at June 30, 2019, w ith the breakdown as follow s:
- A €(72) million foreign exchange result (against €(40) million at June 30, 2019),
- A loss of €(546) million relating to the fair value of derivative instruments, given the over-hedging of fuel for the April to December 2020 period.
First half financial report 2020 | Air France-KLM 28 |
- The impact of accretion on provisions and liabilities for leased aircraft restitution amounting to €(84) million (€(104) million as of June 30, 2019).
Net income/(loss) - Equity holders of Air France-KLM
Income tax amounted to €(254) million versus €(37) million at June 30, 2019. A €364 million w rite down on deferred tax assets over the French tax scope w as recognised during the first half 2020 to take into account a low er level of recoverability for future tax loss carry-forw ards.
The share of profits/(losses) of associates amounted to €(29) million at June 30, 2020 (€8 million at June 30, 2019).
Net income/(loss) - Equity holders of Air France-KLM stood at €(4,413) million as of June 30, 2020 (€(227) million at June 30, 2019).
The contributions to the net result by quarter w ere, respectively,€(1,801) million for the first quarter 2020 and €(2,612) million for the second quarter 2020.
Basic earnings/(loss) per share - equity holders of Air France-KLM- stood at €(10.35) at June 30, 2020 versus €(0.55) at June 30, 2019.
Investments and financing of the Group
The Air France-KLM Group's net capital expenditure on tangible and intangible assets amounted to €1,112 million during the first half 2020 versus €1,302 million at June 30, 2019. Net investment in the fleet amounted to €458 million, ground investment to €95 million, spare parts and aeronautical modifications to €219 million, capitalized maintenance costs to €225 million and investment in intangible assets to €115 million.
Net cash flow fromoperating activities stood at €(803) million versus €2,283 million at June 30, 2019, the change being explained by:
- A fall in operating cash flow to €(1,346) million at June 30, 2020 versus €1,492 million at June 30, 2019.
- The change in w orking capital w hich moved from €791 million at June 30, 2019 to €543 million at June 30, 2020.
In January 2020, the Group received proceeds of €356 million on the sale of the remaining shares in Amadeus.
At June 30, 2020, net debt stood at €7.97 billion versus €6.15 billion at December 31, 2019.
With the draw downof the KLMcredit facility for €665 million and the €2 billion draw n down by Air France-KLMwithin the framework of the loan guaranteed by the French State, the Group has a satisfactory level of liquidity, w ith net cash of €5.77 billion at June 30, 2020.
At June 30, 2020, stockholders' equity, Group part, w as negative at €(2.56) billion, dow n by €4.84 billion during the first half.
Air France-KLM parent company results
As a holding company, Air France-KLMhas no operating activity. Its revenues are composed of royalties paid by the two operating subsidiaries for use of the Air France-KLM logo and services invoiced to Air France and KLM. Its expenses mostly comprise financial communication costs, Statutory Auditors' fees, the expenses linked to the compensation of company officers and the staff made available by Air France and KLM. The operating result stood at a loss of €(2) million.
The net result amounted to a €(23) million loss, mainly due to financial expenses on the bonds. No dividend w as paid in respect of 2019.
First half financial report 2020 | Air France-KLM 29 |
Key financial indicators
Operating margin
In € million | June 30, 2020 | June 30, 2019 |
Income/(loss) fromcurrent operations | (2,368) | 137 |
Revenues | 6,201 | 12,963 |
Operating margin | na | 1.06% |
Restated net result
The restated net result corresponds to the net result adjusted for exceptional or non-recurring items. The income tax impact is calculated on a normative basis using a rate of 29.72%, corresponding to the average of the French and Dutch rates.
In € million | June 30, 2020 | June 30, 2019 |
Net income/(loss), Group share | (4,413) | (227) |
Change in fair value of financial assets and liabilities (derivatives and shares) | 224 | (20) |
Unrealized foreign exchange gains and losses | 74 | 56 |
Non-current income and expenses | 830 | 7 |
Income tax impact on the adjustments | (317) | (13) |
Restated net income/(loss), Group share | (3,602) | (197) |
Restated net income/(loss) per share, Group share (in euros) | (8.43) | (0.46) |
Financial cover ratios
- Net debt/EBITDA
June 30, 2020 | December 31, | |
2019 | ||
Net debt (in €m) | 7,973 | 6,147 |
EBITDA (in €m) | 1,678 | 4,128 |
Net debt/EBITDA | 4.8x | 1.5x |
- EBITDA/net cost of financial debt
June 30, 2020 | December 31, | |
Trailing 12 months | 2019 | |
EBITDA (in €m) | 1,678 | 4,128 |
Net cost of financial debt (in €m) | 401 | 393 |
EBITDA/net cost of financial debt | 4.2x | 10.5x |
First half financial report 2020 | Air France-KLM 30 |
Return on Capital Employed (ROCE)
The return on capital employed is a profitability indicator that measures the return on invested capital by expressing a result after tax as a percentage of capital employed. The calculation methodology, in line w ith market practices, is the follow ing:
- The calculation of capital employed is based on an additive method by identifying the balance sheet items corresponding to capital employed. The capital employed for the year is obtained by taking the average of the capital employed on the four last quarterly balance sheets;
- The adjusted result after tax corresponds to the sum of the operating result, adjusted for dividends received and the share of profits/(losses) of associates. Income tax is calculated on a normative basis using the tax rate in force in France and the Netherlands, w eighted as a function of the contribution of each sub-group to the adjusted result before tax.
June 30, | March 31, | December 31, | September 30, | |
2020 | 2020 | 2019 | 2019 | |
(In € million) | restated | |||
Goodw ill and intangible assets | 1,500 | 1,564 | 1,522 | 1,481 |
Flight equipment | 10,919 | 11,465 | 11,334 | 10,905 |
Other property, plant and equipment | 1,551 | 1,579 | 1,580 | 1,554 |
Right-of-use assets | 4,938 | 5,119 | 5,173 | 5,212 |
Investments in equity associates | 267 | 299 | 307 | 310 |
Other financial assets excluding shares available for sale, | ||||
marketable securities and financial deposits | 133 | 142 | 140 | 131 |
Restitution liabilities and other provisions excluding pension, | ||||
cargo litigation and restructuring | (4,130) | (4,190) | (4,058) | (4,105) |
WCR, excluding market value of derivatives | (6,779) | (6,650) | (6,310) | (6,285) |
Capital employed on the balance sheet | 8,399 | 9,328 | 9,688 | 9,203 |
Average capital employed (A) | 9,155 | |||
Operating result | (1,364) | |||
Dividends received | (1) | |||
Share of profits/(losses) of associates | (15) | |||
Normative income tax | 447 | |||
Adjusted result from current operations after tax (B) | (933) | |||
ROCE (B/A) | (10.2)% | |||
First half financial report 2020 | Air France-KLM 31 |
June 30, | March 31, | December 31, September 30, | ||
(In € million) | 2019 restated 2019 restated 2018 restated 2018 restated | |||
Goodw ill and intangible assets | 1,465 | 1,485 | 1,411 | 1,391 |
Flight equipment | 10,747 | 10,456 | 10,308 | 10,401 |
Other property, plant and equipment | 1,530 | 1,504 | 1,503 | 1,462 |
Right-of-use assets | 5,470 | 5,453 | 5,664 | 5,596 |
Investments in equity associates | 305 | 306 | 311 | 299 |
Other financial assets excluding shares available for sale, | 125 | 127 | 125 | 116 |
marketable securities and financial deposits | ||||
Restitution liabilities and other provisions excluding pension, | (3,888) | (3,907) | (3,760) | (3,676) |
cargo litigation and restructuring | ||||
WCR, excluding market value of derivatives | (6,957) | (6,938) | (6,133) | (5,851) |
Capital employed on the balance sheet | 8,797 | 8,486 | 9,429 | 9,738 |
Average capital employed (A) | 9,113 | |||
Operating result | 1,278 | |||
Dividends received | (2) | |||
Share of profits/(losses) of associates | 23 | |||
Normative income tax | (360) | |||
Adjusted result from current operations after tax (B) | 939 | |||
ROCE (B/A) | 10.3% | |||
First half financial report 2020 | Air France-KLM 32 |
Net cost per ASK
To analyze the cost performance of each transportation activity, the Group divides the net cost of this activity by the capacity produced, expressed in ASK for the "passenger netw ork" business and Transavia, and in ATK for the cargo activity.
To analyze the company's overall cost performance, the Group uses the net cost per ASK. This net cost is obtained by dividing the total net cost by the capacity produced expressed in available seat-kilometers (ASK).
The net cost is calculated by subtracting from total operating expenses the revenues other than those generated by the three transportation activities (passenger, cargo, Transavia). The capacity produced by the transportation activities is combined by adding the capacity of the Passenger netw ork (in ASK) to that of Transavia (in ASK).
First half 2020 | First half 2019 | |
Revenues (in €m) | 6,201 | 12,963 |
Income/(loss) fromcurrent operations (in €m) | 2,368 | (137) |
Total operating expense (in €m) | 8,568 | 12,826 |
Passenger netw ork business - other revenues (in €m) | (177) | (370) |
Cargo netw ork business- other revenues (in €m) | (142) | (153) |
Third-party revenues in the maintenance business (in €m) | (716) | (1,081) |
Transavia - other revenues (in €m) | (14) | - |
Third-party revenues of other businesses (in €m) | (11) | (16) |
Net cost (in €m) | 7,508 | 11,205 |
Capacity produced, reported in ASK | 76,337 | 160,793 |
Net cost per ASK (in € cents per ASK) | 9.84 | 6.97 |
Gross change | 41.1% | |
Currency effect on net costs (in €m) | 44 | |
Change at constant currency | 40.6% | |
Capacity effect on the net cost | (5,937) | |
Fuel price effect (in €m) | 17 | |
Net cost per ASK on a constant currency and fuel price (in € cents per | 9.84 | 6.98 |
ASK) | ||
Change on a constant currency and fuel price basis | +40.9% | |
- The capacity produced by the passenger business is calculated by adding the passenger network capacity (in ASK) to that of Tr ansavia (ASK)
First half financial report 2020 | Air France-KLM 33 |
UNAUDITED INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the
European Commission for use in the European Union
January 1, 2020 - June 30, 2020
First half financial report 2020 | Air France-KLM 34 |
CONSOLIDATED INCOME STATEMENT (unaudited)
In € millions | |||
Period from January 1 to June 30 | Notes | 2020 | 2019 |
restated (1) | |||
Sales | 6 | 6,201 | 12,963 |
Revenues | 6,201 | 12,963 | |
External expenses | 7 | (4,423) | (7,735) |
Salaries and related costs | 8 | (2,931) | (4,020) |
Taxes other than income taxes | (80) | (93) | |
Other income and expenses | 10 | 393 | 495 |
EBITDA | (840) | 1,610 | |
Amortization, depreciation and provisions | 9 | (1,528) | (1,473) |
Income from current operations | (2,368) | 137 | |
Sales of aircraft equipment | 24 | 23 | |
Other non-current income and expenses | 11 | (854) | (30) |
Income from operating activities | (3,198) | 130 | |
Cost of financial debt | 12 | (215) | (221) |
Income from cash and cash equivalents | 12 | 12 | 27 |
Net cost of financial debt | (203) | (194) | |
Other financial income and expenses | 12 | (733) | (133) |
Income before tax | (4,134) | (197) | |
Income taxes | 13 | (254) | (37) |
Net income of consolidated companies | (4,388) | (234) | |
Share of profits (losses) of associates | (29) | 8 | |
Net income for the period | (4,417) | (226) | |
Non-controlling interests | (4) | 1 | |
Net income - Group part | (4,413) | (227) | |
Earnings per share - Equity holders of Air France-KLM (in euros) | |||
- basic | 14 | (10.35) | (0.55) |
- diluted | (10.35) | (0.55) |
The accompanying notes are an integral part of these consolidated financial statements.
(1)See note 2 in notes to the consolidated financial statements.
First half financial report 2020 | Air France-KLM 35 |
CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSES (unaudited)
In € millions | |||
Period from January 1 to June 30 | Notes | 2020 | 2019 |
restated (1) | |||
Net income for the period | (4,417) | (226) | |
Effective portion of changes in fair value hedge and cost of hedging recognized | (1,255) | 404 | |
directly in other comprehensive income | |||
Change in fair value and cost of hedging transferred to profit or loss | 707 | (79) | |
Currency translation adjustment | 1 | - | |
Deferred tax on items of comprehensive income that w ill be reclassified to | 153 | (103) | |
profit or loss | |||
Total of other comprehensive income that will be reclassified to profit or loss | (394) | 222 | |
Remeasurements of defined benefit pension plans | 21 | (77) | (331) |
Fair value of equity instruments revalued through OCI | (28) | (12) | |
Deferred tax on items of comprehensive income that will not be reclassified to | 39 | 52 | |
profit or loss | |||
Total of other comprehensive income that will not be reclassified to profit or | (66) | (291) | |
loss | |||
Total of other comprehensive income, after tax | (460) | (69) | |
Recognized income and expenses | (4,877) | (295) | |
- Equity holders of Air France-KLM | (4,872) | (297) | |
- Non-controlling interests | (5) | 2 |
The accompanying notes are an integral part of these consolidated financial statements.
(1) See note 2 in notes to the consolidated financial statements.
First half financial report 2020 | Air France-KLM 36 |
CONSOLIDATED BALANCE SHEET (unaudited)
First half financial report 2020 | Air France-KLM 37 |
Assets | June 30, | December 31, | |
In € millions | Notes | 2020 | 2019 |
Goodw ill | 217 | 217 | |
Intangible assets | 1,282 | 1,305 | |
Flight equipment | 16 | 10,919 | 11,334 |
Other property, plant and equipment | 16 | 1,551 | 1,580 |
Right-of-use assets | 16 | 4,938 | 5,173 |
Investments in equity associates | 267 | 307 | |
Pension assets | 21 | 254 | 420 |
Other financial assets | 1,071 | 1,096 | |
Deferred tax assets | 282 | 523 | |
Other non-current assets | 19 | 231 | 241 |
Total non-current assets | 21,012 | 22,196 | |
Other short-term financial assets | 394 | 800 | |
Inventories | 647 | 737 | |
Trade receivables | 18 | 1,354 | 2,164 |
Other current assets | 19 | 1,107 | 1,123 |
Cash and cash equivalents | 20 | 4,796 | 3,715 |
Total current assets | 8,298 | 8,539 | |
Total assets | 29,310 | 30,735 |
The accompanying notes are an integral part of these consolidated financial statements.
First half financial report 2020 | Air France-KLM 38 |
CONSOLIDATED BALANCE SHEET (unaudited) (continued)
June 30, | December 31, |
Liabilities and equity | |||
In € millions | Notes | 2020 | 2019 |
Issued capital | 22.1 | 429 | 429 |
Additional paid-in capital | 4,139 | 4,139 | |
Treasury shares | (67) | (67) | |
Perpetual | 403 | 403 | |
Reserves and retained earnings | 22.1 | (7,463) | (2,620) |
Equity attributable to equity holders of Air France -KLM | (2,559) | 2,284 | |
Non-controlling interests | 10 | 15 | |
Total equity | (2,549) | 2,299 | |
Pension provisions | 21 | 2,192 | 2,253 |
Return obligation liability and other provisions | 23 | 3,798 | 3,750 |
Financial debt | 24 | 8,364 | 6,271 |
Lease debt | 25 | 2,891 | 3,149 |
Deferred tax liabilities | 7 | 142 | |
Other non-current liabilities | 28 | 316 | 222 |
Total non-current liabilities | 17,568 | 15,787 | |
Return obligation liability and other provisions | 23 | 1,007 | 714 |
Current portion of financial debt | 24 | 1,836 | 842 |
Lease debt | 25 | 1,018 | 971 |
Trade payables | 1,476 | 2,379 | |
Deferred revenue on ticket sales | 27 | 3,619 | 3,289 |
Frequent flyer programs | 898 | 848 | |
Other current liabilities | 28 | 4,434 | 3,602 |
Bank overdrafts | 20 | 3 | 4 |
Total current liabilities | 14,291 | 12,649 | |
Total liabilities | 31,859 | 28,436 | |
Total equity and liabilities | 29,310 | 30,735 |
The accompanying notes are an integral part of these consolidated financial statements.
First half financial report 2020 | Air France-KLM 39 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY (unaudited)
In € millions | Number of | Issued | Addition | Treasury | Perpetual | Reserve | Equity | Non- | Total |
shares | capital | al paid-in | shares | s and | attributable | controlling | equity | ||
capital | retained | to holders | interests | ||||||
earnings | of Air | ||||||||
France-KLM | |||||||||
December 31, 2018 restated (1) | 428,634,035 | 429 | 4,139 | (67) | 403 | (3,118) | 1,786 | 12 | 1,798 |
Gain / (loss) on cash f low hedges
Fair v alue of equity instruments through OCI
Remeasurements of def ined benef it pension plans
Currency translation adjustment
- | - | - | - | - | 221 | 221 | 1 | 222 |
- | - | - | - | - | (9) | (9) | - | (9) |
- | - | - | - | - | (282) | (282) | - | (282) |
- | - | - | - | - | - | - | - | - |
Other comprehensive income | - | - | - | - | - | (70) | (70) | 1 | (69) |
Net result f or the period | - | - | - | - | - | (227) | (227) | 1 | (226) |
Total of income and expenses | - | - | - | - | - | (297) | (297) | 2 | (295) |
recognized | |||||||||
OCEANE | - | - | - | - | - | 35 | 35 | - | 35 |
Div idends paid and coupons on | - | - | - | - | - | - | - | (1) | (1) |
perpetual | |||||||||
Other | - | - | - | - | - | - | (1) | - | (1) |
June 30, 2019 restated (1) | 428,634,035 | 429 | 4,139 | (67) | 403 | (3,380) | 1,523 | 13 | 1,536 |
December 31, 2019 | 428,634,035 | 429 | 4,139 | (67) | 403 | (2,620) | 2,284 | 15 | 2,299 |
Gain / (loss) on cash f low hedges | - | - | - | - | - | (394) | (394) | (1) | (395) |
Fair v alue of equity instruments | |||||||||
through OCI | - | - | - | - | - | (21) | (21) | - | (21) |
Remeasurements of def ined benef it | - | - | - | - | - | (45) | (45) | - | (45) |
pension plans | |||||||||
Currency translation adjustment | - | - | - | - | - | 1 | 1 | - | 1 |
Other comprehensive income | - | - | - | - | - | (459) | (459) | (1) | (460) |
Net result f or the period | - | - | - | - | - | (4,413) | (4,413) | (4) | (4,417) |
Total of income and expenses | - | - | - | - | - | (4,872) | (4,872) | (5) | (4,877) |
recognized | |||||||||
Other | - | - | - | - | - | 29 | 29 | - | 29 |
June 30, 2020 | 428,634,035 | 429 | 4,139 | (67) | 403 | (7,463) | (2,559) | 10 | (2,549) |
The accompanying notes are an integral part of these consolidated financial statements. | |||||||||
The amounts included in other comprehensive income are presented net of deferred tax. | |||||||||
(1)See note 2 in notes to the consolidated financial statements. | |||||||||
First half financial report 2020 | Air France-KLM | 40 |
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Period from January 1 to June 30 | Notes | 2020 | 2019 |
In € millions | restated (1) | ||
Net income from continuing operations | (4,417) | (226) | |
Amortization, depreciation and operating provisions | 1,527 | 1,473 | |
Financial provisions | 88 | 108 | |
Loss (gain) on disposals of tangible and intangible assets | (36) | (31) | |
Loss (gain) on disposals of subsidiaries and associates | - | (2) | |
Derivatives - non monetary result | 224 | 24 | |
Unrealized foreign exchange gains and losses, net | 74 | 56 | |
Share of (profits) losses of associates | 29 | (8) | |
Deferred taxes | 244 | 34 | |
Impairment | 639 | - | |
Other non-monetary items | 282 | 64 | |
Financial capacity | (1,346) | 1,492 | |
(Increase) / decrease in inventories | 59 | (73) | |
(Increase) / decrease in trade receivables | 703 | (371) | |
Increase / (decrease) in trade payables | (875) | 24 | |
Increase / (decrease) in advanced ticket sales | 378 | 1,266 | |
Change in other receivables and payables | 278 | (55) | |
Change in w orking capital requirement | 543 | 791 | |
Net cash flow from operating activities (A) | (803) | 2,283 | |
Acquisition of subsidiaries, of shares in non-controlled entities | (1) | - | |
Purchase of property plant and equipment and intangible assets (B) | 17 | (1,284) | (1,507) |
Proceeds on disposal of subsidiaries, of shares in non-controlled entities | 3.2 | 357 | 8 |
Proceeds on disposal of property plant and equipment and intangible assets (C) | 172 | 76 | |
Dividends received | - | 7 | |
Decrease (increase) in net investments, more than 3 months | (3) | 20 | |
Net cash flow used in investing activities | (759) | (1,396) | |
Increase of equity due to new convertible bonds | - | 54 | |
Issuance of debt | 24 | 5,014 | 762 |
Repayment on debt | 24 | (1,993) | (338) |
Payments on lease debts (D) | (412) | (502) | |
New loans | (20) | (34) | |
Repayment on loans | 72 | 20 | |
Dividends and coupons on perpetual paid | - | (1) | |
Net cash flow from financing activities | 2,661 | (39) | |
First half financial report 2020 | Air France-KLM | 41 |
Effect of exchange rate on cash and cash equivalents and bank overdrafts (net of cash | (17) | (13) | |
acquired or sold) | |||
Change in cash and cash equivalents and bank overdrafts | 1,082 | 835 | |
Cash and cash equivalents and bank overdrafts at beginning of period | 20 | 3,711 | 3,580 |
Cash and cash equivalents and bank overdrafts at end of period | 20 | 4,793 | 4,415 |
Income tax (paid) / reimbursed (flow included in operating activities) | (9) | 5 | |
Interest paid (flow included in operating activities) | (180) | (221) | |
Interest received (flow included in operating activities) | 3 | 14 | |
The accompanying notes are an integral part of these consolidated financial statements. | |||
(1) See note 2 in notes to the consolidated financial statements. |
First half financial report 2020 | Air France-KLM 42 |
OPERATING FREE CASH-FLOW (UNAUDITED)
Period from January 1 to June 30 | Notes | 2020 | 2019 |
in € millions | restated (1) | ||
Net cash flow from operating activities | A | (803) | 2,283 |
Purchase of property plant and equipment and intangible assets | B | (1,284) | (1,507) |
Proceeds on disposal of property plant and equipment and intangible assets | C | 172 | 76 |
Operating free cash flow | 26 | (1,915) | 852 |
Payments on lease debts | D | (412) | (502) |
Operating free cash flow adjusted | (2,327) | 350 |
The accompanying notes are an integral part of these consolidated financial statements.
(1)See note 2 in notes to the consolidated financial statements.
First half financial report 2020 | Air France-KLM 43 |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
First half financial report 2020 | Air France-KLM 44 |
1. BUSINESS DESCRIPTION
As used herein, the term "Air France-KLM" refers to Air France-KLMSA, a limited liability company organized under French law . The term "Group" is represented by the economic definition of Air France-KLM and its subsidiaries. The Group is headquartered
in France and is one of the largest airlines in the w orld. The Group's core business is network activities which includes passenger transportation on scheduled flights and cargo activities. The Group's activities also include aeronautics maintenance, "low cost" passenger transportation (Transavia) and other air - transport-related activities.
The limited company Air France-KLM, domiciled at 2, rue Robert Esnault-Pelterie 75007 Paris, France, is the parent company of the Air France-KLM Group. Air France-KLM is listed for trading in Paris (Euronext) and Amsterdam (Euronext).
The presentation currency used in the Group's financial statements is the euro,which is also Air France-KLM's functional currency.
2. RESTATEMENT OF ACCOUNTS 2019
In the fourth quarter of 2019, the Air France-KLM Group implemented for the purpose of comparison the follow ing changes retrospectively:
- Customer compensation
On September 17, 2019 the IFRS Interpretations Committee published a clarification of IFRS 15 concerning customer compensation for delays or cancellations. Obligations to compensate customers for delayed or cancelled flights are required to be recognized as variable compensation components w ithin the meaning of IFRS 15, thus reducing the amount of revenue. Previously the Group had recognized these payments as costs in the income statement and, purs uant to the IFRIC decision, retrospectively changed the accounting method in the consolidated financial statements as of January 1, 2019.
- Component approach for Life Limited Parts
A Life Limited Part (LLP) is defined as a major engine part w hose failure would jeopardize the engine's operation. Consequently, as a precaution, engine manufacturers define limited useful lives in cycles beyond w hich the LLPs must be replaced.
The cost of a complete set of LLPs is significant and their useful lives (depending on the parts) range from3,000 to 40,000 cycles (a cycle corresponds to one take-off and one landing).
Internal IT developments and data analytics have enabled the Group to improve its ability to track LLP accounting management more precisely. As a result, as of January 1, 2019, the Group has been able to implement the component approach for these spare parts. This means that their maintenance costs must be capitalized and amortized over the useful lives of the LLPs w hich are expressed in cycles.
In accordance w ith IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors", these changes in accounting policies have been applied retrospectively to each previous period for w hich financial information is presented.
For comparison purposes, the consolidated financial statements as of June 30, 2019 have been restated.
First half financial report 2020 | Air France-KLM 45 |
Impact on the consolidated income statement | ||||
In € million | Published | LLP | Customer | Restated |
Period from January 1 to June 30, 2019 | accounts | componentization | compensation | accounts |
Sales | 13,036 | (73) | 12,963 | |
External expenses | (7,806) | 2 | 69 | (7,735) |
Salaries and related costs | (4,020) | (4,020) | ||
Taxes other than income taxes | (93) | (93) | ||
Other income and expenses | 454 | 41 | 495 | |
EBITDA | 1,571 | 43 | (4) | 1,610 |
Amortization, depreciation and provisions | (1,474) | (3) | 4 | (1,473) |
Income from current operations | 97 | 40 | 137 | |
Income from operating activities | 90 | 40 | 130 | |
Net cost of financial debt | (194) | (194) | ||
Other financial income and expenses | (110) | (23) | (133) | |
Income before tax | (214) | 17 | (197) | |
Income taxes | (33) | (4) | (37) | |
Net income of consolidated companies | (247) | 13 | (234) | |
Net income in equity affiliates | 8 | 8 | ||
Net income | (239) | 13 | (226) | |
Earnings per share (basic) | (0.58) | 0.03 | (0.55) | |
Earnings per share (diluted) | (0.58) | 0.03 | (0.55) | |
First half financial report 2020 | Air France-KLM 46 |
Impact on the consolidated statement of cash flow s
In € million | Published | LLP | Customer | Restated |
Period from January 1 to June 30, 2019 | accounts | componentization | compensation | accounts |
Net income | (239) | 13 | (226) | |
Other items of the financial capacity | (1,693) | 29 | (4) | 1,718 |
Financial capacity | (1,454) | 42 | (4) | 1,492 |
Change in w orking capital requirement | 787 | 4 | 791 | |
Net cash flow from operating activities | 2,241 | 42 | 2,283 | |
Net cash flow used in investing activities | (1,354) | (42) | (1,396) | |
Net cash flow from financing activities | (39) | (39) | ||
Effect of exchange rate on cash and cash equivalents | (13) | (13) | ||
and bank overdrafts | ||||
Change in cash and cash equivalents and bank | 835 | 835 | ||
overdrafts | ||||
Cash and cash equivalents and bank overdrafts at | 3,580 | 3,580 | ||
beginning of period | ||||
Cash and cash equivalents and bank overdrafts at end | 4,415 | 4,415 | ||
of period | ||||
3. SIGNIFICANT EVENTS
3.1. COVID-19
The w orldwide spread of Covid-19 in the first half of 2020 has had and continues to have a major impact on air traffic around the w orld. Many countries have taken increasingly stringent measures in an attempt to slow the expansion of the epidemic and have imposed constraints on the movement of travelers fromEurope. Consequently, air traffic to most of Air France- KLM's destinations has been and w ill be significantly reduced and was down by 91 per cent relative to normal traffic levels in May 2020. In June 2020 activity stood around 15% of normal level of traffic, the recovery taking place first on the short haul netw ork.
The Group has already taken a number of strong measures to mitigate the effect of Covid-19 on the business and continues to closely monitor and evaluate further developments. These actions include, amongst others, a strong capacity reduction of the netw ork, structural changes to the fleet, securing cash and several cost savings.
Capacity reduction
Available seat kilometers for the passenger netw ork and Transavia business w ere down 89.4% in the second quarter 2020 compared to last year, resulting in a drop of 52.5% in the first half year 2020 compared to last year. As a consequence, the Group revenues amounted to €6,201 million, a decrease of 52.2% compared to last year, w ith Netw ork revenues decreasing by 53.1%, Maintenance by 28.4% and Transavia by 65.2%.
In parallel, the decrease of capacity related to Covid-19 consequences and some specific cost initiatives resulted in a reduction in the Group's external expenses to €3,312 million, dow n 42.8% versus last year. External expenses excluding fuel price are down 59% compared to last year. Fuel costs were down by only 46.4% due to negative hedge results follow ing the decline of the fuel price.
In addition, follow ing the drastic reduction of fuel consumption, the Group had to terminate a large portion of the fuel hedge relationships leading to a loss of €590 million accounted for in "Other financial income and expenses" as of June 30, 2020.
Fleet
To better align the fleet w ith the lower passenger demand, the Group has accelerated the retirement of the A380, A340, B747 and ERJ145 fleets (see note 11 Other non-current income and expenses). These decisions w ill bring forward cost savings and efficiencies due to operating few er aircraft types.
First half financial report 2020 | Air France-KLM 47 |
Staff costs reductions
Air France and its subsidiaries implemented part-time activity and KLM, starting as from April 1, 2020, receives support fromthe Dutch State w ith the "Temporary Emergency Bridging Measure for Sustained Employment" (NOW).
The Group's cost savings amounts around €850 million in the second quarter of 2020 and has been accounted for on the "salaries and other related costs".
Liquidity position
To preserve cash and improve the liquidity position, on May 6, 2020, the Air France-KLM Group signed the legal documentation relating to the financing for a total amount of 7 billion euros and approved by the European Commission on 4 May 2020 (see note 24.5 Loans guaranteed by the French and the Dutch State).
Back mid-March 2020, Air France-KLM drew down its revolving credit facilities for a total amount of €1.8 billion of w hich €1.1 billion w as reimbursed on May 7, 2020 before the first drawdown of the funding package backed by the French State for Air France (see note 24.7 Credit line).
On 25 June 2020, the Dutch State, the Air France-KLM group and KLM have finalized an agreement on a financial support mechanism supported by the Dutch State to KLM group for an amount of €3.4 billion (See note 24.5 Loans guaranteed by the French and the Dutch State).
Besides, the Group reassessed capital expenditures and internal projects, deferred payment of the employee's profit sharing scheme, variable w ages and deferred payment of w age tax and social security contributions.
Despite these measures and in spite of a gradual resumption of activity, A ir France-KLM's financial performance for the coming period w ill continue to be severely affected by a loss of revenue, sales of tickets and significant negative cash flow s to an extent and for a duration that are currently uncertain.
Based on the liquidity analysis for the next 12 months, recovery plan and measures taken since the inception of the Covid-19 crisis, Air France-KLM Board approved the interim financial statements as of June 30, 2020 according to going concern assumption. Air France KLM is considering scenarios for supporting the repayment of the State supports and manage its forthcoming equity situation.
Assets valuation
In the actual context, the Group paid also specific attention to the recoverability of its deferred tax assets (see note 13 Income tax) and its business segment assets (see note 15 Impairment).
3.2. Events that occurred in the period
Sales of Amadeus shares
On January 9, 2020, Air France-KLMsold its remaining shares in the Spanish company Amadeus IT Holding SA ("Amadeus"), for an amount of €356 million. The fair value of the shares stood at €360 million as of December 31, 2019. Since the entire 1.11 per cent Amadeus shareholding w as covered by a hedge contract, the result of the transaction is nil in the income statement in 2020. The cash proceeds of €356 million are included in "Proceeds on disposal of subsidiaries, of shares in non -controlled entities" in the cash flow statement.
Issue of notes and tender offer on series of existing notes
On January 10, 2020, Air France-KLMissued a €750 million senior notes w ith a 5- year maturity and bearing coupon at an annual rate of 1.875%.
Part of the net proceeds of this issuance w ere used to fund the tender offer on existing notes launched by the Company on January 6, 2020 and finalized on January 14, 2020. On the existing notes brought to the tender offer, €350 million w ere accepted of w hich €311.2 million of notes w ith a maturity date in 2021 and €38.8 million of notes w ith maturity date in 2022.
Drawn down of revolving credit facility during the first quarter 2020
On March 13, 2020, Air France-KLMdrew down its revolving credit facility for a total amount of €1,1 billion divided into tw o tranches of €550 million each. On May 7, 2020, follow ing the financial support package backed by the French State for Air France Group, Air France KLM reimbursed the €1.1 billion credit facility and terminated the revolving credit facility.
Furthermore, on March 19, 2020, KLM drew down its revolving credit facility concluded on May 23, 2018 f or the full amount of €665 million. This amount has been included into the short-term financial debt as of June 30, 2020.
First half financial report 2020 | Air France-KLM 48 |
KLM's first drawing under the new revolving credit facility, as part of the financial package guaranteed by the Dutch State is used to repay and terminate the existing revolving credit facility of €665 million.
Financial support package of €7.0 billion backed by the French State
On 6 May 2020, the Air France-KLMGroup signed the legal documentation relating to the financing for a total amount of 7 billion euros, announced in its press release of 24 April 2020 and approved by the European Commission on May 4, 2020. This financing intends to support the liquidity needs of Air France and its subsidiaries and includes tw o loans:
- A loan of € 4 billion, 90% guaranteed by the French State, provided by a syndicate of nine banks, w ith an initial 12- month maturity and a one-year or tw o-year extension option exercisable by Air France-KLM (see note 24.5 Loans guaranteed by the French and the Dutch State).
- A subordinated shareholder loan of €3 billion, granted by the French State to Air France-KLM, w ith a maturity of four years, w ith tw o consecutive one-year extension options exercisable by Air France-KLM (see note 24.5 Loans guaranteed by the French and the Dutch State).
Financial support package of €3.4 billion backed by the Dutch State
On June 25, 2020, follow ing discussions with the Dutch State and several international banking institutions, the Air France -KLM Group and KLM w ere able to finalize the various components of a financial support package. It includes tw o loans for KLM and its subsidiaries:
- A revolving credit facility of €2.4 billion, 90% guarantee supported by the Dutch State and a maturity of 5 years. KLM's first drawing under the new revolving credit facility is used to repay and terminate the existing revolving credit facility draw n on March 19, 2020 for an amount of €665 million.
-
A direct loan of €1 billion, granted by the Dutch State to KLM, w ith a maturity of 5.5 years.
Main conditions associated w ith the direct state loan are linked to the airline becoming more sustainable as w ell as the restored performance and competitiveness of KLM, including a comprehensive restructuring plan and contributions made by employees.
As of June 30, 2020, none of these tw o financing have been w ithdraw n.
Restructuring plan for Air France -KLM Group
To face the Covid-19 crisis and forecasts expecting a return at the same level of activity of 2019 in 2024, Air France KLM must accelerate its transformation to regain its competitiveness and strengthen its leading position in terms of sustainable transition. In this context, Air France Group and KLM Group announced the restructuring of the company and a reduction of staff.
- KLM Voluntary Resignation Scheme
The Covid-19 has had a major impact on KLM and, to the contend w ith the reduction of w orkload expected until 2024, the option to leave the company on a voluntary basis with financial compensation was opened for KLMemployees for a period starting June 1, 2020 and ending July 12, 2020. The 2020 Voluntary Resignation Scheme offers a financial incentive, the level of which depends on the number of years in service. Based on the 2,436 employees who have registered for the voluntary leave plan, KLMrecorded a restructuring provision of €178 million as of June 30, 2020.
- Air France Group
On 3 July 2020, Air France and HOP! announced their strategic orientations and the prospects for adapting the w orkforce:
- Air France predicts a reduction of 6,560 jobs by the end of 2022 out of a current total of 41,000. Natural departures expected over this period (more than 3,500) makes it possible to compensate more than half of these job reductions.
- For HOP! the resizing of activity and the restructuring of the company linked in particular to the simplification of the fleet leads to a reduction of 1,020 jobs over the next three years out of the current 2,420. Taking into account the estimated number of natural departures, the overstaffing figure remains at around 820 at the end of 2022.
Within the framew ork of these strategic orientations, the negotiations conducted by Air France with representatives of pilots , cabin crew , ground staff and HOP employees are at different stages of progress as of June 30, 2020.
-
Mutual agreement on termination of contract ("Rupture Conventionnelle Collective") for
Air France pilots
During the meeting of the Social Economic Establishment Committee ("CSEE") Flight Operations of June 26, 2020, the management of Air France presented the mutual agreement on termination of contract ("RCC") for pilots. A cost of € (37) million has been accounted for as of June 30, 2020 in "Other non-current income and expenses".
First half financial report 2020 | Air France-KLM 49 |
For Air France Group cabin crew and ground staff, see note 3.3. Subsequent events
3.3. Subsequent events
Air France restructuring plan for cabin crew and ground staff
On July 6, 2020, during the meeting of the Social Economic Establishment Committee ("CSEE") Flight Operations, the management of Air France presented the project of mutually agreement on termination of contract ("RCC") for cabin crew .
On July 24, 2020, during the meeting of the Social Economic Central Committee ("CSEC"), the management of Air France
presented the project of voluntary departure plan for ground staff.
The impact of these decisions is estimated, at this stage, at € (430) million and w ill be accounted for in "other non-current income and expenses" during the third quarter of 2020.
Financial support package of €7.0 billion backed by the French S tate
As of 30 June 2020, Air France-KLMdrew down €2 billion fromthe bank loan guaranteed by the French State. The loan has been draw n for another €2 billion in July 2020. Therefore, as of July 30, 2020, the €4 billion have been draw n dow n.
4. ACCOUNTING POLICIES
4.1. Accounting principles
Accounting principles used for the consolidated financial statements
Pursuant to the European Regulation n° 1606/2002 of July 19, 2002, the consolidated financial statements of the Air France -KLM Group as of December 31, 2019 w ere established in accordance with the International Financial Reporting Standards ("IFRS") as adopted by the European Commission on the date these consolidated financial statements w ere established.
The condensed interimconsolidated financial statements as of June 30, 2020 have been prepared in accordancewith International Financial Reporting Standard IAS 34 "Interim Financial Statements". They do not include all the information required for annu al financial statements under IFRS and must be read in connection w ith the annual consolidated financial statements for the year ended on December 31, 2019.
The condensed interim consolidated financial statements for the period from January 1, 2020 to June 30, 2020 w ere prepared using the same accounting principles and methods used in the consolidated financial statements for the fiscal year ended December 31, 2019, except for standards and interpretations adopted by the European Union applicable as fromJanuary 1, 2020.
The condensed interim consolidated financial statements as of June 30, 2020 w ere approved by the Board of Directors on July 30, 2020.
Change in accounting principles
- IFRS standards w hich are applicable on a mandatory basis to the 2020 financial statements
Amendments to IAS 1"Presentation of financial statements" and IAS 8 "Accounting policies, changes in accounting estimates and errors"
These amendments, w hich define the termmateriality, give guidance on the information to be disclosed in the financial statements, based on its importance.
Amendments to IFRS 9 "Financial instruments" and IFRS 7 "Financial instruments: Disclosures"
Since January 1, 2020, the Group has applied Phase 1 amendments to IFRS 9, IAS 39 and IFRS 7 released by the IASB in September 2019 as part of the interest-rate benchmarks reform(IBORs). These amendments allow the Group not to consider the uncertainties over the future of the interest-rate benchmarks in the assessment of hedging relationships and/or in the appraisal of the highly probable hedged flow s, enabling to maintain the existing and future hedging relationships until the effective set up of these new interest-rate benchmarks.
The application of this amendment has no impact on the Group's financial statements as of January 1, 2020 and allow s to continue w ith the hedge accounting of instruments indexed notably to Euribor and Libor US.
Foreign exchange rate and interest rate derivatives affected by this amendment are derivatives qualified as cash flow for the risk of interest and foreign exchange rate and are presented in the disclosures of the Group's financial statements as of December 31, 2019.
Amendment to IFRS 3 "Business Combinations"
First half financial report 2020 | Air France-KLM 50 |
The amendment provides changes in the definitions of the separate components of a business. Hence, an acquir ed set of activities must be substantive and, like the operating staff, able to create outputs.
The application of these amendments has no significant impact on the Group's condensed interim consolidated financial statements.
IFRS IC interpretations of the lease term (IFRS 16) and useful life of leasehold improvements (IAS 16)
This interpretation gives some clarification concerning the enforceable duration of indefinite lease contracts cancellable by either party, subject to prior notice, or concluded for an initial contractual term, and renew able by tacit agreement, unless terminated by either party.
This interpretation also gives clarification on the link betw een the enforceable lease term and useful life of leasehold improvements.
These amendments and this interpretation has no significant impact on the Group's condensed interim consolidated financial statements as of June 30, 2020.
- Other texts potentially applicable to the Group, published by the IASB but not yet adopted by the European Union
Amendments to IAS 1 "Presentation of financial statements"
(Effective for the accounting periods as of January 1, 2022)
These amendments clarify the classification of current or non-current liabilities and aim to promote a consistent approach to this classification.
Amendments to IAS 16 "Property, Plant and Equipment"
(Effective for accounting periods as of January 1, 2022)
These amendments aim at standardizing the accounting method for the proceeds and costs while an item of property, plant or equipment is in the testing phase.
Amendments to IFRS 3 "Business combinations"
(Effective for accounting periods as of January 1, 2022)
These amendments update the standard IFRS 3 follow ing the publication of the new Conceptual Framew ork in March 2018.
This new conceptual framework effectively modified the definition of assets and liabilities w hich could have led to the derecognition of some types of liabilities immediately after an acquisition.
Reference to IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" or IFRIC 21 "Levies" must be made to identify the liabilities assumed in a business combination for transactions or other events falling w ithin the scope of these texts.
The contingent assets acquired in a business combination shall not be accounted for.
Amendments to IAS 37 "Provisions, Contingent liabilities and Contingent Assets"
(Effective for accounting periods as of January 1, 2022)
These amendments standardize the identification and assessment practices related to the provisions for onerous contracts, especially regarding losses upon termination arising from contracts concluded w ith customers w ithin the scope of IFRS 15 "Revenue from Contracts w ith Customers".
These amendments indicate that the costs to include to assess the "cost of fulfilling a contract" are the costs that relate directly to the contract.
These amendments w ill apply to the contracts forwhich the entity has not yet fulfilled all its obligations as fromthe commencement date of the year of the first-time adoption.
Amendment to IFRS 9 "Financial instruments"
(Effective for accounting periods as of January 1, 2022)
The amendment to IFRS 9 is included in the annual improvements to IFRS standards 2018 - 2020.
The amendment indicates that the fees included in the 10 per cent test for ass essing w hether a financial liability must be derecognized are only the costs paid or fees received between the borrower and the lender, including those w hich are paid or received on the behalf of the other party.
First half financial report 2020 | Air France-KLM 51 |
Concerning the first adoption, the amendment to IFRS 9 w ill apply to financial liabilities that are modified or exchanged as from the commencement date of the earliest comparative period presented in the financial statements of the first adoption of the annual improvements to IFRS standards 2018 - 2020.
Amendments to IFRS 16 « Leases »
(Effective for accounting periods as of June 1, 2020)
This amendment permits to lessees not to assess whether a rent concession occurring as a direct consequence of the Covid -19 pandemic is a lease modification.
This practical expedient allow s the lessee to account for those rent concessions related to the Covid-19 pandemic as if they were not lease modifications and to recognize the impact of the rent concession in the result of the period. This practical expedient applies to rent concessions related to Covid-19 fulfilling the follow ing conditions:
- the modification leads to a revision of the lease debt that is substantially the same or inferior to the initial lease debt immediately prior to the modification;
- the rents are initially ow ed by June 30, 2021 latest;
- there is no other substantial modification in the contract.
4.2. Preparation of condensed interim consolidated financial statements
Seasonality of the activity
Under normal circumstances, revenues and income fromcurrent operations are characterized by their seasonal nature related to a high level of activity fromApril 1 to September 30. This phenomenon varies in magnitude depending on the year. In accordance w ith IFRS, revenues and the related expenses are recognizedover the period in which they are realized and incurred respectively.
Income taxes
For the interim financial statements, the tax charge (current and deferred) is calculated by applying to the income before tax of the period the estimated annual average tax rate for the current year for each entity or fiscal group.
Retirement benefits
The net obligations concerning the defined-benefits schemes are revalued based on the discount rates and the fair-value of assets at interim closing dates. The net impact of these revaluations is recorded in other comprehensive income. Significant variation in discount rates can lead the Group to review other actuarial assumptions in order to maintain the overall consistency of the assumptions set.
Fuel hedging
The Group has implemented a policy to hedge fuel price risks and foreign exchange risks. The Group uses derivatives to hedge the price of fuel future purchases (by monthly time step), over a tw o-year rolling horizon, approximately.
Hedges are implemented based upon the forecasts of the first monthly future purchases, w ith a hedge ratio policy w hich corresponds to maximum 60% of the estimated consumption.
The Group applies the hedge accounting of future cash flows: the fair value of the derivative instruments qualifying as hedges is recognized in the balance sheet against the "other comprehensive income". The amount recognized in the "other comprehensive income" is transferred to the income from current operations w hen the hedged item affects the net income.
The Covid-19 public health crisis has led to the decline in air traffic and in the fuel purchases.
The Group has adjusted its forecasts related to fuel purchases and has undesignated part of its hedging instruments. If the fuel purchase previously planned is still "highly probable", the hedge accounting is continued.
Otherw ise, the hedge accounting cannot be continued and the hedging instruments are undesignated:
- If the transaction is still probable, the change in fair value accumulated remains in the "other comprehensive income" (and w ill be transferred to the income from current operations at the time of the fuel purchase) and the future changes in fair value are recognized in the financial result.
- If the transaction is not probable anymore, the change in fair value accumulated is reclassified fromthe "other comprehensive income" to the financial result and the future changes in fair value are recognized in the financial result.
The hedging instruments are undesignated based upon the new forecasts of future fuel purchases in accordance with the hedge documentation. This documentation indicates that the first derivative implemented hedge the first fuel purchases of the month concerned.
First half financial report 2020 | Air France-KLM 52 |
4.3. Use of estimates
The preparation of the condensed interim consolidated financial statements in conformity with International Financial Reporting Standard IAS 34 "Interim Financial Statements" requires management to make estimates and use assumptions that affect the reported amounts in the financial statements at the date of the condensed interim consolidated financial statements and the reported amounts of revenues and expenses. The significant areas of estimates described in the note 4 of the December 31, 2019 consolidated financial statements, concerned:
- Revenue recognition related to deferred revenue on ticket sales (see note 6)
- Flying Blue frequent flyer program
- Financial instruments (see note 12)
- Intangible assets (see notes 15)
- Tangible assets (see notes 15 and 16)
- Lease contracts (see notes 16 and 25)
- Pension assets and provisions (see note 21)
- Return obligation liability and provision for leased aircraft (see note 23)
- Other provisions (see note 23)
- Current and deferred tax (see note 13)
The Group's management makes these estimates and ass essments continuously on the basis of its past experience and various other factors considered to be reasonable that provide the basis for these assumptions.
The condensed interim consolidated financial statements for the period have thus been established taking into consideration the current context of the sanitary crisis linked to Covid-19 and on the basis of financial parameters available at the closing date.
The actual amounts could differ from these estimates depending on changes in the assumptions used or different conditions.
5. CHANGE IN THE CONSOLIDATION SCOPE
• First semester ended June 30, 2020
No significant acquisitions or disposals took place during the first semester ended June 30, 2020.
• First semester ended June 30, 2019
No significant acquisitions or disposals took place during the first semester ended June 30, 2019.
6. INFORMATION BY ACTIVITY AND GEOGRAPHICAL AREA
Business segments
The segment information is prepared on the basis of internal management data communicated to the Executive Committee, the
Group's principal operational decision-making body.
The Group is organized around the follow ing segments:
Netw ork: The Passenger netw ork and Cargo operating revenues primarily come from passenger transportation services on
scheduled flights w ith the Group's airline code (excluding Transavia), including flights operated by other airlines under code -
sharing agreements. They also include commissions paid by SkyTeam alliance partners, code-sharing revenues, revenues from excess baggage and airport services supplied by the Group to third-party airlines and services linked to IT systems.
Netw ork revenues also include freight carried on flights operated under the codes of the airlines w ithin the Group and flights operated by other partner airlines under code-sharing agreements. Other cargo revenues are derived principally from the sales of cargo capacity to third parties and the transportation of shipments on behalf of the Group by other airlines.
Maintenance: Maintenance operating revenues are generated through maintenance services provided to other airlines and customers w orldw ide.
Transavia: The revenues from this segment come from the "low -cost" activity realized by Transavia.
Other: The revenues fromthis segment come fromvarious services provided by the Group and not covered by the four segments mentioned above.
The results of the business segments are those that are either directly attributable or that can be allocated on a reasonable basis to these business segments. Amounts allocated to business segments mainly correspond to EBITDA, current operating income
and income from operating activities. Other elements of the income statement are presented in the "non-allocated" column.
Inter-segment transactions are evaluated based on normal market conditions.
First half financial report 2020 | Air France-KLM 53 |
Geographical segments
• Activity by origin of sales area
Group activities by origin of sale are broken dow n into eight geographical areas:
- Metropolitan France
- Benelux
- Europe (excluding France and Benelux)
- Africa
- Middle East, Gulf, India (MEGI)
- Asia-Pacific
- North America
- Caribbean, West Indies, French Guyana, Indian Ocean, South America (CILA)
Only segment revenue is allocated by geographical sales area.
• Activity by destination
Group activities by destination are broken dow n into seven geographic areas:
- Metropolitan France
- Europe (excluding France) and North Africa
- Caribbean, West Indies, French Guyana and Indian Ocean
- Africa (excluding North Africa), Middle East
- North America, Mexico
- South America (excluding Mexico)
- Asia and New Caledonia
6.1. Information by business segment
- First semester ended June 30, 2020
In € millions | Netw ork Maintenance Transavia | Other | Non- | Total | |||
allocated | |||||||
Total sales | 5,227 | 1,640 | 259 | 78 | - | 7,204 | |
Intersegment sales | (11) | (924) | - | (68) | - | (1,003) | |
External sales | 5,216 | 716 | 259 | 10 | - | 6,201 | |
EBITDA | (790) | 9 | (67) | 8 | - | (840) | |
Income from current operations | (1,852) | (321) | (193) | (2) | - | (2,368) | |
Income from operating activities | (2,558) | (442) | (196) | (2) | - | (3,198) | |
Share of profits (losses) of associates | - | - | - | (29) | - | (29) | |
Net cost of financial debt and other financial | - | - | - | - | (936) | (936) | |
income and expenses | |||||||
Income taxes | - | - | - | - | (254) | (254) | |
Net income | (2,558) | (442) | (196) | (31) | (1,190) | (4,417) | |
Income from current operations at Maintenance | is impacted | around €( 200) | million by | additional | provisions (receivables, |
inventories, margin on long term contracts, onerous contracts ).
First half financial report 2020 | Air France-KLM 54 |
• First semester ended June 30, 2019 restated (1)
In € millions | Netw ork Maintenance | Transavia | Other | Non- | Total | |
allocated | ||||||
Total sales | 11,145 | 2,290 | 743 | 123 | - | 14,301 |
Intersegment sales | (19) | (1,209) | (2) | (108) | - | (1,338) |
External sales | 11,126 | 1,081 | 741 | 15 | - | 12,963 |
EBITDA
Income from current operations Income from operating activities Share of profits (losses) of associates
Net cost of financial debt and other financial income and expenses
Income taxes
1,225 | 268 | 99 | 18 | - | 1,610 |
54 | 98 | (17) | 2 | - | 137 |
71 | 99 | (17) | (23) | - | 130 |
1 | 1 | - | 6 | - | 8 |
- | - | - | - | (327) | (327) |
- | - | - | - | (37) | (37) |
Net income | 72 | 100 | (17) | (17) | (364) | (226) |
- See note 2 in notes to the consolidated financial statements.
6.2. Information by geographical area
External sales by geographical area
∙ First semester ended June 30, 2020
First half financial report 2020 | Air France-KLM 55 |
In € millions | Metropo- | Benelux | Europe | Africa | Middle- | Asia | North | West Indies | Total |
litan | (except | Eastern | Pacific | America | Caribbean | ||||
France | gulf | ||||||||
France | |||||||||
and | Guyana | ||||||||
India | |||||||||
Benelux) | |||||||||
(MEGI) | Indian Ocean | ||||||||
South | |||||||||
America | |||||||||
(CILA) | |||||||||
Transportation | 1,370 | 620 | 1,073 | 268 | 144 | 417 | 701 | 304 | 4,897 |
Other sales | 101 | 46 | 57 | 23 | 9 | 41 | 24 | 18 | 319 |
Total netw ork | 1,471 | 666 | 1,130 | 291 | 153 | 458 | 725 | 322 | 5,216 |
Transportation | 59 | 152 | 28 | 2 | 1 | 1 | 1 | 1 | 245 |
Other sales | (1) | - | (2) | - | - | 3 | 3 | 11 | 14 |
Total Transavia | 58 | 152 | 26 | 2 | 1 | 4 | 4 | 12 | 259 |
Maintenance | 315 | 356 | 11 | - | - | 1 | 33 | - | 716 |
Others | 2 | 8 | - | - | - | - | - | - | 10 |
Total | 1,846 | 1,182 | 1,167 | 293 | 154 | 463 | 762 | 334 | 6,201 |
- First semester ended June 30, 2019 restated (1)
In € millions | Metropo- | Benelux | Europe | Africa | Middle- | Asia | North | West Indies | Total |
litan | (except | Eastern | Pacific | America | Caribbean | ||||
France | gulf | ||||||||
France | |||||||||
and | Guyana | ||||||||
India | |||||||||
Benelux) | |||||||||
(MEGI) | Indian Ocean | ||||||||
South | |||||||||
America | |||||||||
(CILA) | |||||||||
Transportation | 3,149 | 1,180 | 2,322 | 491 | 264 | 988 | 1,586 | 622 | 10,602 |
Other sales | 194 | 75 | 90 | 32 | 10 | 68 | 28 | 27 | 524 |
Total netw ork | 3,343 | 1,255 | 2,412 | 523 | 274 | 1,056 | 1,614 | 649 | 11,126 |
Transportation | 217 | 426 | 78 | 6 | 6 | 2 | 4 | 2 | 741 |
Other sales | 2 | (5) | - | - | - | - | 3 | - | - |
Total Transavia | 219 | 421 | 78 | 6 | 6 | 2 | 7 | 2 | 741 |
Maintenance | 636 | 382 | 11 | - | - | 2 | 50 | - | 1,081 |
Others | 3 | 12 | - | - | - | - | - | - | 15 |
Total | 4,201 | 2,070 | 2,501 | 529 | 280 | 1,060 | 1,671 | 651 | 12,963 |
(1) See note 2 in notes to the consolidated financial statements.
First half financial report 2020 | Air France-KLM 56 |
Traffic sales by geographical area of destination
- First semester ended June 30, 2020
In € millions | Metropolitan | Europe | Caribbean, | Africa | North | South | Asia, | Total |
France | (except | French | (except | America, | America, | New | ||
Guyana, Indian | Mexico | except | ||||||
France) | Ocean | North | Mexico Caledonia | |||||
North Africa | Africa) | |||||||
Middle East | ||||||||
Netw ork | 351 | 881 | 485 | 713 | 1,021 | 612 | 834 | 4,897 |
Transavia | 3 | 219 | - | 23 | - | - | - | 245 |
Total | 354 | 1,100 | 485 | 736 | 1,021 | 612 | 834 | 5,142 |
- First semester ended June 30, 2019
In € millions | Metropolitan | Europe | Caribbean, | Africa | North | South | Asia, | Total |
France | (except | French | (except | America, | America, | New | ||
Guyana, Indian | Mexico | except | ||||||
France) | Ocean | North | Mexico Caledonia | |||||
North Africa | Africa) | |||||||
Middle East | ||||||||
Netw ork | 831 | 2,360 | 821 | 1,357 | 2,291 | 1,045 | 1,897 | 10,602 |
Transavia | 11 | 672 | - | 58 | - | - | - | 741 |
Total | 842 | 3,032 | 821 | 1,415 | 2,291 | 1,045 | 1,897 | 11,343 |
First half financial report 2020 | Air France-KLM 57 |
7. EXTERNAL EXPENSES
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | restated (1) | |
Aircraft fuel | 1,397 | 2,605 |
Chartering costs | 114 | 269 |
Landing fees and air route charges | 478 | 941 |
Catering | 178 | 395 |
Handling charges and other operating costs | 441 | 840 |
Aircraft maintenance costs | 912 | 1,296 |
Commercial and distribution costs | 230 | 517 |
Other external expenses | 673 | 872 |
Total | 4,423 | 7,735 |
Excluding aircraft fuel | 3,026 | 5,130 |
(1)See note 2 in notes to the consolidated financial statements. |
First half financial report 2020 | Air France-KLM 58 |
8. SALARIES AND NUMBER OF EMPLOYEES
Salaries and related costs
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | ||
Wages and salaries | 2,312 | 2,750 |
Social contributions | 435 | 535 |
Pensions costs on defined contribution plans | 283 | 337 |
Pensions costs of defined benefit plan | 154 | 133 |
Cost of temporary employees | 66 | 126 |
Profit sharing and payment linked w ith shares | - | 57 |
Temporary Emergency Bridging Measure for Sustained Employment | (336) | - |
Other | 17 | 82 |
Total | 2,931 | 4,020 |
The Group pays contributions to a multi-employer plan in France, the CRPN (public pension fund for crew). Since this multi- employer plan is assimilated w ith a French State plan, it is accounted for as a defined contribution plan in "pension costs on defined contribution plans".
Follow ing the impact of the Covid-19 public health crisis, starting from March 23, 2020 Air France and its main subsidiaries implemented part-time activity for its employees. The impact of this measure amounts around €500 million and has been allocated to the lines "Wages and salaries" and "Social contributions".
The line "Temporary Emergency Bridging Measure for Sustained Employment" includes the compensation received from the Dutch State for the KLM Group's labor expenses during the period fromApril 1 until June 30, 2020. This compensation amounts to €336 million.
Average number of employees
Period from January 1 to June 30 | 2020 | 2019 |
Flight deck crew | 8,719 | 8,378 |
Cabin crew | 22,185 | 22,185 |
Ground staff | 51,628 | 52,022 |
Temporary employees | 1,364 | 3,021 |
Total | 83,896 | 85,606 |
First half financial report 2020 | Air France-KLM 59 |
9. AMORTIZATION, DEPRECIATION AND PROVISIONS
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | restated (1) | |
Amortization | ||
Intangible assets | 93 | 90 |
Flight equipment | 604 | 607 |
Other property, plant and equipment | 99 | 99 |
Right-of-Use assets | 618 | 647 |
1,414 | 1,443 | |
Depreciation and provisions | ||
Inventories | 14 | 13 |
Trade receivables | 89 | 6 |
Risks and contingencies | 11 | 11 |
114 | 30 | |
Total | 1,528 | 1,473 |
- See note 2 in notes to the consolidated financial statements.
The variation on trade receivables provision mainly relates to provision for maintenance receivables.
10. OTHER INCOME AND EXPENSES
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | restated (1) | |
Capitalized production | 349 | 523 |
Joint operation of routes | (5) | (23) |
Operations-related currency hedges | 65 | 12 |
Emission trade schemes (ETS) | (20) | (28) |
Other | 4 | 11 |
Other income and expenses | 393 | 495 |
(1) See note 2 in notes to the consolidated financial statements. |
First half financial report 2020 | Air France-KLM 60 |
11. OTHER NON-CURRENT INCOME AND EXPENSES
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | ||
Restructuring costs | (226) | (30) |
Modification on pension plans | - | (11) |
Disposals of other assets | 12 | 6 |
Impairment of fleet | (639) | - |
Other | (1) | 5 |
Other non-current income and expenses | (854) | (30) |
∙ Six-month period ended June 30, 2020
Restructuring costs
As of June 30, 2020, this line mainly includes the voluntary departure plan provision for KLM staff, amounting to € (178) million and a cost related to the project of collective mutual agreement on termination of contract ("Rupture Conventionnelle Collective") for Air France pilots, amounting to € (37) million (see note 3.2 Events that occurred in the period).
Impairment of fleet
As of June 30, 2020, this line relates to the impact of the phase-out fromthe fleet of the A380, A340 and B747 by Air France-KLM Group, follow ing the drastic reduction in air traffic in relation w ith Covid-19 (see note 3.2 Events that occurred in the period).
- Phase-outof the Air France A380 aircraft
The final phase-out of the nine aircraft in the A380 fleet of w hich 5 ownedand 4 leased aircraft, announced on May 20, 2020, and initially planned for the end of 2022, has been brought forward to 2020. The related impact amounts to € (545) million as of June 30, 2020.
- Phase-outof KLM's B747 aircraft
A €21 million impairment has been recorded at the end of March 2020 to revalue the eight KLM B747s at their estimated market value.
- Phase-outof Air France's A340 aircraft
A €72 million impairment has been recorded to revalue the four Air France A340 aircraft at their estimated market value follo wing the phase-out decision on May 6, 2020.
- Six-monthperiod ended June 30, 2019
Restructuring costs
These mainly included the impact relating to the voluntary departure plan for Air France ground staff.
Modification of pension plans
On February 22, 2019, an agreement w as signed amending the retirement indemnities for Air France pilots retiring at 60 years or above, providing an advanced notice of at least 12 months is given, increasing the benefit obligation by €11 million.
Other
This line mainly includes the sale of Vilgénis school real estate in the Paris area and ground equipment at Charles de Gaulle airport.
First half financial report 2020 | Air France-KLM 61 |
12. NET COST OF FINANCIAL DEBT AND OTHER FINANCIAL INCOME AND EXPENSES
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | restated (1) | |
Income from marketable securities | (2) | 2 |
Other financial income | 14 | 25 |
Financial income | 12 | 27 |
Interest on financial debt | (68) | (70) |
Interest on lease debt | (131) | (136) |
Capitalized interests | 11 | 11 |
Other non-monetary items | (25) | (19) |
Other financial expenses | (2) | (7) |
Gross cost of financial debt | (215) | (221) |
Net cost of financial debt | (203) | (194) |
Foreign exchange gains (losses), net | (72) | (40) |
Financial instruments and change in fair value of hedged shares | (546) | 20 |
Net (charge)/release to provisions | (2) | (3) |
Undiscounting of provisions | (84) | (106) |
Other | (29) | (4) |
Other financial income and expenses | (733) | (133) |
(1) See note 2 in notes to the consolidated financial statements. |
Financial income
Financial income mainly consists in interest income on financial assets accounted at the effective interest rate and the result on the disposal of financial assets at fair value recorded through the income statement.
Foreign exchange gain (losses)
As of June 30, 2020, the foreign exchange losses mainly include an unrealized currency loss of € (73) million of w hich an € (8) million loss on return obligation liabilities and provisions on aircraft in US dollars and an unrealized €(49) million curren cy loss on financial debt in US Dollar (€(32) million), in Sw iss francs (€(7) million) and in Japanese Yen (€(14) million).
As of June 30, 2019, the foreign exchange losses mainly included an unrealized currency loss of € (53) million of w hich € (27) million on return obligation liabilities and provisions on aircraft in US dollars and an unrealiz ed € (24) million currency loss on financial debt in Japanese Yen.
Financial instruments and change in fair value of hedged shares
Due to the expected significant reduction in fuel consumption for the remainder of 2020, this line includes the impact of over- hedging, amounting to € (590) million recycled to the income statement. At the end of June, an amount of € (322) million of t hese derivatives had been settled and € (268) million relates to the period July -December 2020.
As of June 30, 2019, this line mainly included a gain on the hedged Amadeus shares of €21 million.
First half financial report 2020 | Air France-KLM 62 |
Other
As of June 30, 2020, this line mainly includes premiums paid on early reimbursement on part of the bonds w ith maturity dates in 2021 and 2022. The total premium is €22 million (see note 3.2. Events that occurred in the period).
13. INCOME TAXES 13.1. Income tax charge
Current income tax expenses and deferred income tax are detailed as follow s:
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | restated (1) | |
Current tax (expense) / income | 72 | (3) |
Change in temporary differences | 21 | (59) |
CVAE impact | - | 2 |
(Use / de-recognition) / recognition of tax loss carry forw ards | (347) | 23 |
Deferred tax income / (expense) from continuing operations | (326) | (34) |
Total | (254) | (37) |
(1) See note 2 in notes to the consolidated financial statements. |
The current income tax charge relates to the amounts paid or payable in the short term to the tax authorities for the period, in accordance w ith the regulations prevailing in various countries and any applicable treaties.
- French fiscal group
In France, the tax rate is 32.02 per cent and the French Finance Act 2018 provides for a gradual reduction in the French corporate tax rate to 25.83 per cent in 2022. Tax losses can be carried forward for an unlimited period. How ever, the amount of fiscal loss recoverable each year is limited to 50 per cent of the profit for the period beyond the first million euros. The Group limits its recoverability horizon on the deferred tax losses of the French fiscal group to a period of seven years,consistent with its operating visibility.
Follow ing the current Covid-19 crisis, the prospects of recoverability within the seven-year horizon have been revised downwards leading to a w rite-off of €365 million of deferred tax assets for tax losses compared to the opening position of the fiscal year. Moreover, €875 million of deferred tax assets have not been recognized for the period relating to the first semester of 2020.
- Dutch fiscal group
In The Netherlands, the tax rate is 25 per cent in 2020 and w ill be low ered to 21.7 per cent in 2021. Tax losses can be carried forw ard over a period of six years w ith no limit to the amount of recovery allow ed each year.
As of June 30, 2020, the Dutch fiscal group has deferred taxes assets on fiscal losses amounting to €13 million, relating to an interest deduction allow ance which can be carried forward indefinitely. The deferred tax assets on fiscal loss excluding interest for the first semester of 2020 amounted to €263 million. KLM has used the carry back facility from2019, amounting to €82 million. The remaining €181 million of deferred tax assets has not been recognized.
First half financial report 2020 | Air France-KLM 63 |
13.2. Deferred tax recorded in equity (equity holders of Air France- KLM)
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | ||
OCEANE | - | (19) |
Other comprehensive income that w ill be reclassified to profit and loss | 153 | (103) |
Gain and loss on cash flow hedge | 153 | (103) |
Other comprehensive income that w ill not be reclassified to profit and loss | 39 | 52 |
Equity instruments | 6 | 3 |
Pensions | 33 | 49 |
Total | 192 | (70) |
13.3. Effective tax rate
The difference betw een the standard and effective tax rate applied in France is detailed as follow s:
In € millions | 2020 | 2019 |
Period from January 1 to June 30 | restated (1) | |
Income before tax | (4,134) | (197) |
Standard tax rate in France | 32.02% | 34.43% |
Theoretical tax calculated based on the standard tax rate in France | 1,324 | 68 |
Differences in French / foreign tax rates | (101) | 20 |
Non-deductible expenses or non-taxable income | (19) | 8 |
Impact of Effective Tax Rate | (1,045) | (134) |
Write-off of deferred tax assets | (365) | - |
Impact of change in income-tax rate | (34) | 1 |
CVAE impact | (7) | (5) |
Other | (7) | 5 |
Income tax expenses | (254) | (37) |
Effective tax rate | -6.2% | -18.9% |
(1) See note 2 in notes to the consolidated financial statements. |
First half financial report 2020 | Air France-KLM 64 |
13.4. Unrecognized deferred tax assets
In € millions | June 30, 2020 | December 31, 2019 | ||
Basis | Tax | Basis | Tax | |
Temporary differences | 942 | 243 | 1,022 | 264 |
Tax losses | 10,582 | 2,697 | 4,947 | 1,277 |
Total | 11,524 | 2,940 | 5,969 | 1,541 |
- French fiscal group
As of June 30, 2020, the cumulative effect of the limitation of deferred tax assets results in the non-recognition of a deferred tax asset amounting to €2,751 million (corresponding to a basis of €10,660 million), of w hich €2,512 million relating to tax losses and €239 million relating to temporary differences (non-recognition of deferred tax assets relating to restructuring provisions and pensions).
As of December 31, 2019, the cumulative effect of the limitation of deferred tax assets results in the non-recognition of a deferred tax asset amounting to €1,532 million (corresponding to a basis of €5,915 million), of w hich €1,272 million relating to tax losses and €260 million relating to temporary differences (non-recognition of deferred tax assets relating to restructuring provisions and pensions).
- Dutch fiscal group
As of June 30, 2020, the cumulative limitation of deferred tax assets results in the non-recognition of a deferred tax asset amounting to €181 million, (corresponding to a basis of €830 million), that only relates to tax losses in the first semester of 2020.
As of December 31, 2019, the Dutch fiscal group has no non-recognized deferred tax assets.
Other unrecognized deferred tax assets mainly correspond to a portion of the tax loss carry forwards of the Air France and KLM subsidiaries not belonging to the fiscal groups, in particular in the United States of America and the United Kingdom.
First half financial report 2020 | Air France-KLM 65 |
14. EARNINGS PER SHARE
14.1 Income for the period - Equity holders of Air France-KLM per share
Reconciliation of income used to calculate earnings per share
The results used to calculate earnings per share are as follow s:
Results used for the calculation of basic earnings per share:
In € millions | 2020 | 2019 |
As of June 30 | restated (1) | |
Net income for the period - Equity holders of Air France-KLM | (4,413) | (227) |
Coupons on perpetual | (9) | (8) |
Basic net income for the period - Equity holders of Air France-KLM | (4,422) | (235) |
(1) See note 2 in notes to the consolidated financial statements. |
Since the perpetual subordinated loan is considered to be preferred shares,the coupons are included in basic earnings per share.
Reconciliation of the number of shares used to calculate earnings per share
As of June 30 | 2020 | 2019 |
Weighted average number of: | ||
- Ordinary shares issued | 428,634,035 | 428,634,035 |
- Treasury stock held regarding stock option plan | (1,116,420) | (1,116,420) |
- Other treasury stock | (85,151) | (85,151) |
Number of shares used to calculate basic earnings per share | 427,432,464 | 427,432,464 |
OCEANE conversion | 27,901,785 | 27,901,785 |
Number of ordinary and potential ordinary shares used to calculate diluted earnings | 455,334,249 | 455,334,249 |
per share | ||
14.2 Non-dilutive instruments
The Air France-KLM Group held no non-dilutive instruments as of June 30, 2020.
14.3 Instruments issued after the closing date
No instruments w ere issued subsequent to the closing date.
First half financial report 2020 | Air France-KLM 66 |
15. IMPAIRMENT
- Year ended June 30, 2020
The health crisis related to COVID-19 and its economic impact constitutes a trigger event for impairment. Thus, the Group has conducted a test of impairment as of June 30, 2020 using a bottom-upfive-year strategic plan subject to the approval by the Board on July 30, 2020. This plan forecasts a return to the level of 2019 activity in 2024 and is subject to the uncertainties related to the current situation
The recoverable value of the CGU assets (Network, Maintenance and Transavia) has been determined by reference to their value in use as of May 31, 2020.
The discount rate used for the test corresponds to the Group's w eighted average costof capital (WACC). It has been reassessed at the end of May 2020 and stands at 6.6 per cent versus 5.9 per cent as at December 31, 2019.
After the aforementioned test, no impairment w as recognizedon the Group's CGUs, including w ith a WACC 50-basis point higher combined w ith a decrease of 100-basis point in the long-term grow th rate or a decrease of 100-basis point in the target operating margin.
- Year ended December 31, 2019
As of December 31, 2019, no impairment w as recognized on the Group's CGUs.
First half financial report 2020 | Air France-KLM 67 |
16. TANGIBLE ASSETS AND RIGHT -OF-USE ASSETS
In € millions | As of June 30, 2020 | As of December 31, 2019 | |||||
Gross | Depreciation | Net Value | Gross | Depreciation Net Value | |||
value | value | ||||||
Ow ned aircraft | 17,097 | (8,960) | 8,137 | 17,192 | (8,684) | 8,508 | |
Assets in progress | 1,284 | - | 1,284 | 1,263 | - | 1,263 | |
Other | 2,485 | (987) | 1,498 | 2,425 | (862) | 1,563 | |
Flight equipment | 20,866 | (9,947) | 10,919 | 20,880 | (9,546) | 11,334 | |
Land and buildings | 2,687 | (1,856) | 831 | 2,708 | (1,851) | 857 | |
Equipment and machinery | 1,060 | (802) | 258 | 1,169 | (862) | 307 | |
Assets in progress | 236 | - | 236 | 205 | - | 205 | |
Other | 1,099 | (873) | 226 | 993 | (782) | 211 | |
Other tangible assets | 5,082 | (3,531) | 1,551 | 5,075 | (3,495) | 1,580 | |
Total | 25,948 | (13,478) | 12,470 | 25,955 | (13,041) | 12,914 | |
Aircraft | 2,476 | 2,798 | |||||
Maintenance | 1,688 | 1,575 | |||||
Land and real estate | 550 | 558 | |||||
Other | 224 | 242 | |||||
Total right-of-use assets | 4,938 | 5,173 | |||||
17. CAPITAL EXPENDITURES
The detail of capital expenditures on tangible and intangible assets presented in the consolidated cash flow statements is as follow s:
In € millions | 2020 | 2019 |
As of June 30 | ||
Acquisition of flight equipment | 1,022 | 1,192 |
Acquisition of other tangible assets | 89 | 110 |
Acquisition of intangible assets | 146 | 197 |
Accounts payable on acquisitions | 27 | 8 |
Subtotal | 1,284 | 1,507 |
First half financial report 2020 | Air France-KLM 68 |
18. TRADE ACCOUNTS RECEIVABLES
The details of trade accounts receivables are as follow s:
In € millions | As of June 30, | As of December 31, |
2020 | 2019 | |
Airlines | 461 | 553 |
Other clients: | ||
* Netw ork | 574 | 862 |
* Maintenance | 558 | 804 |
* Other | 36 | 118 |
Gross value | 1,629 | 2,337 |
Opening valuation allow ance | (173) | (155) |
Charge to allow ance | (106) | (39) |
Use of allow ance | 3 | 18 |
Reclassification | 1 | 3 |
Closing valuation allow ance | (275) | (173) |
Net value | 1,354 | 2,164 |
The charge to allow ance mainly relates to maintenance receivables. |
19. OTHER ASSETS
The details of other assets are as follow s:
First half financial report 2020 | Air France-KLM 69 |
In € millions | As of June 30, | As of December 31, | ||
2020 | 2019 | |||
Current | Non-current | Current | Non-current | |
Suppliers w ith debit balances | 88 | - | 99 | - |
State receivables (including income tax) | 198 | - | 224 | - |
Derivative instruments | 158 | 228 | 258 | 238 |
Prepaid expenses | 173 | - | 221 | - |
Other debtors | 491 | 3 | 322 | 3 |
Gross value | 1,108 | 231 | 1,124 | 241 |
Opening valuation allow ance | (1) | - | (1) | - |
Closing valuation allow ance | (1) | - | (1) | - |
Other | 1,107 | 231 | 1,123 | 241 |
20. CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS
In € millions | As of June 30, | As of December 31, |
2020 | 2019 | |
Liquidity funds (SICAV) (assets at fair value through profit and loss) | 2,264 | 1,268 |
Bank deposits and term accounts (assets at fair value through profit and loss) | 963 | 1,599 |
Cash in hand | 1,569 | 848 |
Total cash and cash equivalents | 4,796 | 3,715 |
Bank overdrafts | (3) | (4) |
Cash, cash equivalents and bank overdrafts | 4,793 | 3,711 |
21. PENSION ASSETS AND PROVISIONS
As of June 30, 2020, the discount rates used by the companies to calculate the defined benefit obligations are the follow ing:
June 30, 2020 | December 31, 2019 | |
Euro zone - duration 10 to 15 years | 0.70% | 0.70 to 0.75% |
Euro zone - duration 15 years and beyond | 1.05% | 1.15% |
The inflation rates used are the following:
First half financial report 2020 | Air France-KLM 70 |
June 30, 2020 | December 31, 2019 | |
Euro zone - duration 10 to 15 years | 0.80% | 1.30% |
Euro zone - duration 15 years and beyond | 0.95% | 1.40% |
The duration of betw een 10 and 15 years mainly concerns the plans located in France w hile the duration of 15 years and beyond mainly concerns the KLM ground staff plan located in The Netherlands.
Remeasurement of defined benefit pension plans is composed of:
June 30, 2020 | June 30, 2019 | |
Impact of the change in discounting rate | (267) | (1,217) |
Impact of the change in inflation rate | 594 | - |
Difference betw een the expected and actual return on assets | (404) | 886 |
Total | (77) | (331) |
The impact of variations in discount rates on the defined benefit obligation has been calculated using sensitivity analysis of the pension defined benefit obligation. The sensitivity analysis is outlined in note 29.2 of the annual financial statements as of December 31, 2019.
22. EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF AIR FRANCE- KLM SA
22.1 Breakdown of stock and voting rights
As of June 30, 2020, the issued capital of Air France-KLM comprised 428,634,035 fully paid-up shares with a nominal value of €1. Each share is entitled to one vote. How ever since April 3, 2016, shareholders who have ow ned their shares for at least two years benefit from double voting rights.
The breakdow n of stock and voting rights is as follow s:
In percentage (%) | June 30, 2020 | December 31, 2019 | ||
Capital | Voting rights | Capital | Voting rights | |
French State | 14.3 | 20.9 | 14.3 | 20.9 |
Dutch State | 14.0 | 10.2 | 14.0 | 10.2 |
Delta Airlines | 8.8 | 12.8 | 8.8 | 12.8 |
China Eastern Airlines | 8.8 | 12.8 | 8.8 | 12.8 |
Donald Smith & co., Inc. | 3.9 | 2.8 | 5.2 | 3.8 |
Employees and former employees | 3.7 | 5.4 | 3.8 | 5.5 |
Treasury shares | 0.3 | 0.4 | 0.3 | 0.4 |
Other | 46.2 | 34.7 | 44.8 | 33.6 |
Total | 100.0 | 100.0 | 100.0 | 100.0 |
The item "Employees and former employees" includes shares held by employees and former employees identified in funds or by a Sicovam code.
First half financial report 2020 | Air France-KLM 71 |
22.2 Reserves and retained earnings
In € millions | June 30, 2020 | December 31, 2019 |
Legal reserve | 70 | 70 |
Pension defined benefit reserves(1) | (1,537) | (1,590) |
Derivatives reserves(1) | (411) | (15) |
Equity instruments reserves(1) | (58) | (37) |
Other reserves | (1,114) | (1,338) |
Net income (loss) - Equity holders of Air France-KLM | (4,413) | 290 |
Total | (7,463) | (2,620) |
(1) Net of deferred tax |
23. RETURN OBLIGATION LIABILITY AND OTHER PROVISIONS
In € millions | June 30, 2020 | December 31, 2019 | ||||
Non-current | Current | Total | Non-current | Current | Total | |
Return obligation liability on leased aircraft | 3,249 | 250 | 3,499 | 3,209 | 167 | 3,376 |
Maintenance on leased aircraft | 411 | 43 | 454 | 410 | 76 | 486 |
Restructuring | - | 331 | 331 | - | 63 | 63 |
Litigation | 59 | 356 | 415 | 59 | 353 | 412 |
Others | 79 | 27 | 106 | 72 | 55 | 127 |
Total | 3,798 | 1,007 | 4,805 | 3,750 | 714 | 4,464 |
23.1. Return obligation liability and other provisions
23.1.1. Return obligation liability on leased aircraft
The movements in return obligation liabilities and provisions (revaluation of future costs and change in discount rate) are booked in the components corresponding to the potential and restoration w ork performed on leased aircraft and recorded in the right-of- use assets. The effects of accretion and foreign exchange translation of return obligation liabilities and provisions recorded in local currencies are recognized in "Other financial income and expenses" (see note 12).
The discount rate used to calculate these restitution liabilities and provisions relating to leased aircraft, determined on the basis of a short-termrisk-free rate increased by a spread on risky debt (used for companies with high financial leverage), is 4.5 per cent as of June 30, 2020 and December 31, 2019.
23.1.2. Restructuring provisions
The movements in restructuring provisions with a significant impact on the income statement are charged to "Other non-current income and expenses" (see note 11).
As of June 30, 2020 and December 31, 2019, the restructuring provisions movements impacting the income statement are recorded in "other non-current income and expenses" w hen is it significant.
First half financial report 2020 | Air France-KLM 72 |
23.1.3. Litigation
An assessment of litigation risks w ith third parties has been carried out w ith the Group's attorneys and provisions have been recorded w henever circumstances require.
Provisions for litigation w ith third parties also include provisions for tax risks. Such provisions are set up whenthe Group considers that the tax authorities, w ithin the framew ork of tax audits, could reasonably challenge a tax position adopted by the Group or one of its subsidiaries.
In the normal course of its activities, the Air France-KLM Group, its subsidiaries Air France and KLM and their subsidiaries are involved in litigation cases, some of w hich may be significant.
23.1.4. Litigation concerning antitrust law s in the airfreight industry
Air France, KLM and Martinair, a w holly-owned subsidiary of KLM since January 1, 2009, have been involved, since February 2006, w ith up to tw enty-five other airlines in investigations initiated by the antitrust authorities in several countries, with respect to allegations of anti-competitive agreements or concerted actions in the air freight industry.
As of December 31, 2019, most of these investigations had been terminated follow ing the entry into plea agreements betw een Air France, KLM and Martinair and the appropriate competition authorities providing for the payment of settlement amounts or fines, w ith the exception of the proceedings initiated by the European Commission, and by the Sw iss antitrust authority, which are still pending.
In Europe, the decision of the European Commission of 2010 against eleven air cargo carriers, including the companies of the Group, Air France, KLM and Martinair, w as annulled by the General Court of the European Union on December 16, 2015 because it contained a contradiction regarding the exact scope of the practices sanctioned. On March 17, 2017, the European Commission issued a new decision against the aforementioned cargo carriers, including Air France, KLM and Martinair. The total amount of fines imposed in respect of this decision at the Air France-KLM Group level w as €339 million. This amount w as slightly reduced by €15.4 million as compared to the initial decision ow ing to a low er fine for Martinair due to technical reasons. On May 29 and 30, 2017 the Group companies filed an appeal against this decision before the General Court of the European Union. The Group has maintained a provision covering the total amount ofthese fines.
In Sw itzerland, Air France and KLM are challenging a decision imposing a €4 million fine before the relevant court. The Group has provisioned the totality of this fine.
As of December 31, 2019, the total amount of provisions in connection w ith proceedings which have yet to give rise to definitive decisions amounts to €343 million.
23.1.5. Other provisions
Other provisions relate principally to provisions for onerous contracts, provisions for the portion of CO2 emissions not covered by the free allocation of quotas and provisions for the dismantling of buildings.
23.2 Contingent liabilities
The Group is involved in several governmental, judicial and arbitration procedures for which in most cases provisions have not been recorded in the financial statements in accordance with the applicable accounting rules. Indeed, w ith respect to most cases the Group is not in a position at this stage in these procedures to give a reliable estimate of the potential loss that w ould be incurred in connection w ith these disputes.
23.2.1. Litigations concerning antitrust law s in the airfreight industry
Follow ing the initiation of various investigations by the competition authorities in 2006 and the European Commission decision in 2010, several collective and individual actions w ere brought by forwarders and air-freight shippers in the civil courts against Air France, KLM and Martinair, and other cargo operators, in a number of jurisdictions.
Under these civil law suits, shippers and freight forwarders are claiming for damages to compensate alleged higher prices due to alleged competition law infringement.
Although significant amounts have been reported by the media, plaintiffs are mostly claiming for unspecified and/or insufficiently substantiated damages against defendants taken as a w hole (and not individually) and the EU decision to w hich the plaintiffs refer to is still not definitive.
The Group companies and the other airlines involved in these law suits continue to vigorously oppose all such civil claims. For Air France, KLM and Martinair the main civil claims still pending are those in the Netherlands and to a limited extent in Norw ay. This case is stayed aw aiting the outcome of the appeal before the EU General Court.
First half financial report 2020 | Air France-KLM 73 |
23.2.2. Litigations concerning antitrust law s in the passenger sector
Canada
A civil class action w as reinitiated in 2013 by claimants in Ontario against seven airlines including Air France and KLM. The plaintiffs allege that the defendants participated in a conspiracy in the passenger air transport service fromCanada on the cross- Atlantic routes, for w hich they are claiming damages. Air France and KLM strongly deny any participation in such a conspiracy.
23.2.3. Other litigations
Rio-Paris AF447 flight
Follow ing to the crash in the South Atlantic Ocean of the Rio-Paris AF447 flight, a number of legal actions for damages have been brought by heirs of the victims in the United States and Brazil and, more recently, in France.
Damages to heirs of the victims are covered by third-party liability insurance subscribed by Air France.
In 2011, Air France and Airbus w ere indicted as legal entities for unintentional manslaughter and therefore are exposed to applicable fines under the French criminal code. Air France is challenging its implication in this criminal case.
US Department of Justice investigation related to United States Postal Service
In March 2016, the US Department of Justice (DOJ) informed Air France and KLM of a civil inquiry regarding contracts w ith the United States Postal Service for the international transportation of mail by air. In September 2016, a Civil Information Demand fromthe DOJ has been received seeking certain information relating to these contracts. The DOJ has indicated it is investigating potential violations of the False Claims Act. Air France and KLM are cooperating w ith the DOJ investigation.
Case brought against KLM by (former) Martinair Cargo pilots
In 2015, a case was brought against KLMby 152 (former) Martinair airline pilots on the basis that the cargo department of Martinair w as transferred to KLM and that all former cockpit crew are entitled to remuneration from KLM, taking into account the Martinair seniority. The low er Court in 2016 and the Court of appeal in 2018 rejected all claims made against KLM. The Martinair airline pilots appealed the 2018 judgment. In November 2019, the Supreme Court ruled that the judgement of the court of appeal lacked sufficient motivation and referred the case to another Court of appeal. This Court w ill have to reconsider certain arguments that w ere brought forward by the airline pilots. Both Martinair airline pilots and KLM have issued their statement of grounds in appeal.
Except for the matters specified under the paragraphs 23.1 and 23.2, the Group is not aw are of any governmental, judicial or arbitration dispute or proceedings (including any proceedings of w hich the issuer is aw are, or that are pending or threatened against it) that could have a significant impact on the Group's financial position, earnings, assets, liabilities or profitability, for a period covering at least the past tw elve months.
First half financial report 2020 | Air France-KLM 74 |
24. FINANCIAL DEBT
In € millions | As of June 30, 2020 | As of December 31, 2019 | ||||
Non- | Current | Total | Non- | Current | Total | |
current | current | |||||
Perpetual subordinated loan in Yen | 166 | - | 166 | 164 | - | 164 |
Perpetual subordinated loan in Sw iss francs | 352 | - | 352 | 345 | - | 345 |
OCEANE (convertible bonds) | 460 | - | 460 | 454 | - | 454 |
Bonds | 1,234 | 288 | 1,522 | 1,128 | - | 1,128 |
Debt on financial leases w ith bargain option | 3,072 | 541 | 3,613 | 2,938 | 547 | 3,485 |
Loan guaranteed by the French state | 1,993 | - | 1,993 | - | - | - |
Other debt | 1,087 | 969 | 2,056 | 1,242 | 252 | 1,494 |
Accrued interest | - | 38 | 38 | - | 43 | 43 |
Total - Financial debt | 8,364 | 1,836 | 10,200 | 6,271 | 842 | 7,113 |
First half financial report 2020 | Air France-KLM 75 |
Change in financial debt
In € millions | December | New | Non- | Reimburseme | Currency | Other | June 30, | ||
31, 2019 | financial | monetary | nt of financial | translation | 2020 | ||||
debt | change | debt | adjustment | ||||||
Perpetual subordinated loan | 509 | - | - | - | 8 | 1 | 518 | ||
OCEANE | 454 | - | 6 | - | - | - | 460 | ||
Bonds | 1,128 | 744 | - | (350) | - | - | 1,522 | ||
Debt on financial | leases | w ith | |||||||
bargain option | 3,485 | 427 | 19 | (333) | 9 | 6 | 3,613 | ||
Loan guaranteed by the French | |||||||||
state | - | 1,993 | - | - | - | - | 1,993 | ||
Other long-term debt | 1,494 | 1,850 | 7 | (1,310) | - | 15 | 2,056 | ||
Accrued interest | 43 | - | (20) | - | - | 15 | 38 | ||
Total | 7,113 | 5,014 | 12 | (1,993) | 17 | 37 | 10,200 | ||
In € millions | December | New | Non- | Reimburseme | Currency | Other | December | ||
31, 2018 | financial | monetary | nt of financial | translation | 31, 2019 | ||||
debt | change | debt | adjustment | ||||||
Perpetual subordinated loan | 572 | - | - | (83) | 20 | - | 509 | ||
OCEANE | - | 446 | 8 | - | - | - | 454 | ||
Bonds | 1,131 | - | (1) | - | (2) | - | 1,128 | ||
Debt on financial | leases | w ith | |||||||
bargain option | 3,547 | 566 | 6 | (619) | 25 | (40) | 3,485 | ||
Other long-term debt | 1,263 | 629 | 3 | (454) | 2 | 89 | 1,494 | ||
Accrued interest | 46 | - | 13 | - | - | (16) | 43 | ||
Total | 6,559 | 1,641 | 29 | (1,156) | 45 | 33 | 7,113 | ||
The new financial debt and repayment of debt flow s include the w ithdrawn followed by the repayment of the credit line of Air France-KLM for 1.1 billion euros on the first semester of 2020 (see note 24.7 Credit lines).
24.1 Perpetual subordinated debt
24.1.1 KLM Perpetual subordinated debt in Japanese Yen
The perpetual subordinated loan in Japanese Yen w as provided to KLM in 1999 for a principal amount of JPY 30 billion.
As per August 28, 2019 KLM has partially redeemed JPY 10 billion, leaving the residual outstanding principal amount to JPY 20 billion, i.e €166 million as of June 30, 2020. As from this date, the f ixed JPY interest rate w as reset to 4% per annum applicable on residual notional amount.
First half financial report 2020 | Air France-KLM 76 |
This perpetual loan can be redeemed at KLM's discretion on each fifth anniversary of the first interest payment date, August 28, 1999. The next repayment option date at Par is therefore set on August 28, 2024. Note that an indemnity is due if the JPY loan is redeemed in another currency than JPY.
This loan debt is subordinated to all other existing and future debt at KLM.
24.1.2 KLM Perpetual subordinated debt in Swiss francs
The perpetual subordinated bond debt in Sw iss francs was issued by KLM in tw o tranches, one in 1985 and one in 1986. The initial nominal amount for these tw o perpetual bonds combined w as CHF 500 million. Over the years, KLM has proceed several partial buy back transactions to partially redeem debt. The total amount now outstanding is CHF 375 million, i.e. €352 millio n as of June 30, 2020.
Concerning the perpetual bond debt issued in 1985, KLM is entitled to early redeemat Par the then prevailing outstanding residual amount on each tenth anniversary of the interest payment date. The next "Call date" is February 12, 2025. The coupon reset da te is fully aligned w ith the above mentioned frequency. If not Called, the next coupon reset date is set on February 12, 2025. The current outstanding coupon is 0.75% per annum.
Concerning the perpetual bond debt issued in 1986, KLM is entitled to early redeem at Par the outstanding residual amount on each fifth anniversary of the interest payment date. The nex t "Call date" is May 15, 2021. The Call price amount in 2001 was
101.75 per cent of the notional face value, and thereafter w ith a premium declining by 0.25 per cent on each fifth anniversary of the interest payment date. Therefore from May 15, 2036, the Call price amount w ill be set at Par. The fixed interest coupon is 5.75% per annum.
The bond debt is subordinated to all other existing and future KLM debts.
The tw o CHF perpetual bond debts are ranked "pari passu" w ith the JPY perpetual loan debt.
24.2 Bonds
Bond | Issuing date | Nominal | Maturity date | Reimbursement | Coupon |
amount (in | date | ||||
millions) | |||||
Bond issued in 2014 | 4 June 2014 | € 288 | 18 June 2021 | - | 3.875% |
€ Bond issued in 2016 | 5 Oct. 2016 | € 360 | 5 Oct. 2022 | - | 3.75% |
$ Bond issued in 2016(1) | 12 Dec. 2016 | $ 145 | 15 Dec. 2026 | - | 4.35% |
€ Bond issued in 2020 | 10 Jan. 2020 | € 750 | 16 Jan. 2025 | - | 1,875% |
- Bonds issued to Asian institutional investors via an unlisted private placement
On January 10, 2020, Air France-KLM issued €750 million senior notes w ith a 5- year maturity and bearing coupon at an annual rate of 1.875%.
A part of the net proceeds of this issuance has been used to fund the tender offer on existing notes launched by the Company on January 6, 2020 and finalized on January 14, 2020. On the existing notes brought to the tender offer, €350 million have been accepted of w hich €311.2 million of notes w ith a maturity date in 2021 and €38.8 million of notes w ith a maturity date in 2022.
24.3 OCEANE
On March 20, 2019, Air France-KLM issued 27,901,785 bonds convertible and/or exchangeable for new or existing Air France- KLM shares (OCEANE) w ith a maturity date fixed at March 25, 2026 for a total nominal amount of €500 million. Each bond has a nominal value of €17.92. The annual coupon amounts to 0.125 per cent. The conversion period of these bonds runs fromMay 4, 2019 to the seventh w orking day preceding the normal or early reimbursement date. The conversion ratio is one share for one bond.
First half financial report 2020 | Air France-KLM 77 |
Repayment at par, plus accrued interest, w ill be possible on March 25, 2024 at the request of the bond holders. Air France-KLM can enforce the cash reimbursement of these bonds by exercising a call option running from April 15, 2022 if the share price
exceeds 130 per cent of the nominal, i.e. €23.29, encouraging OCEANE bond holders to convert their bonds into Air France-KLM
shares.
Upon issue of these convertible bonds, Air France-KLM recorded a debt of €446 million, corresponding to the present value of
future payments of interest and nominal discounted at the rate of a similar bond w ithout a conversion option. The option value,
calculated by deducting this debt value from the total nominal amount of the issue (i.e. €500 million), w as recorded in equit y.
As of June 30 2020, the debt value amount to €460 million.
24.4 Other debt
Other debt breaks dow n as follow s:
In € millions | As of June 30, | As of December 31, |
2020 | 2019 | |
Reservation of ow nership clause and mortgage debt | 990 | 1,072 |
Credit lines - see note 24.7 | 665 | - |
Other debt | 401 | 422 |
Total | 2,056 | 1,494 |
Mortgage debt is a debt secured by a mortgage on an aircraft. The mortgage is filed at the national civil aviation authority (the DGAC in France) in order to be publicly available to third parties. A mortgage grants to the mortgagee a right to enforce the security (by order of a judge), the sale of the asset and a priority claim on the sale proceeds in line w ith the amount of the loan, the balance reverting to the other creditors.
Other debt corresponds mainly to bank borrow ings. They also include €19 million related to debt issuing expenses on financial
debt.
24.5 Loans guaranteed by the French and Dutch states
Financial support package of €7.0 billion backed by the French State
On 6 May 2020, Air France-KLM Group signed the legal documentation relating to the financing for a total amount of 7 billion euros. This financing includes tw o loans:
- A loan of € 4 billion, 90% guaranteed by the French State, w ith an initial 12-month maturity and a one-year or tw o-year extension option exercisable by Air France-KLM. The loan has a coupon at an annual rate equal to EURIBOR (floored at zero) plus a margin of 0.75% in the first year, 1.50% in the second year and 2.75% in the third year. The cost of the French State guarantee initially equals to 0.5% of the total amount of the loan and w hich will step up to 1% for each of the second and third years. The loan includes a mandatory partial early repayment of 75% of the any net new money raised by Air France-KLM or Air France from financial institutions or through debt capital markets , subject to some exceptions and a mandatory total early repayment notably in case of change of control of Air France-KLMor Air France.
- A subordinated shareholder loan of €3 billion, granted by the French State to Air France-KLM, w ith a maturity of four
years, w ith tw o consecutive one-year extension options exercisable by Air France-KLM. This loan has a coupon payable annually or capitalizable at the discretion of Air France-KLMat a rate equal to EURIBOR 12 months (floored at zero) plus a margin of 7% for the first four years, 7.5% for the fifth and 7.75% for the sixth.
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This rate w ill be increased by 5.5% step up in case (i) the general assembly w ould not approve a capital increase proposed by the Board of Directors that w ould enable incorporation in the company's shareholder equity of all or part of the outstanding shareholder loan, (ii) the general assembly w ould approve, without the approval from the French State, a capital increase w hich would not enable the incorporation of all or part the outstanding shareholder loan in the company's shareholder equity or (iii) a third party, not acting in concert w ith the French State, w ould exceed, alone or in concert, the threshold of 20% of the capital of Air France-KLM. This loan is subordinated to the French State guaranteed bank loan and, in the event of receivership or liquidation, to all the Air France-KLM senior bond and bank
debt, w ithout prejudice of an incorporation of all or part the outstanding shareholder loan in the company's shareholder equity.
The company has undertaken not to pay dividends until these tw o loans have been repaid in full.
As of June 30, 2020, Air France KLM has draw n down €2 billion of the bank loan guaranteed by the French State. It has been
recorded at amortized cost based on a 3 year draw n dow n assumption and a Effective Interest Rate of 2.66 per cent.
Financial support package of €3.4 billion backed by the Dutch State
On 25 June 2020, the Dutch State, the Air France-KLM group and KLM have finalized an agreement on a financial support
mechanism supported by the Dutch State to KLM group for an amount of €3.4 billion This financial support package includes two
loans for KLM and its subsidiaries:
- A revolving credit facility of €2.4 billion, for 90% guaranteed by the Dutch State and w ith a maturity of 5 years. This revolving credit facility has an interest of EURIBOR (floored at zero) plus a margin of 1.35%. The cost of the associated Dutch State guarantee equals to 0.50% in year 1, 1.00% in year 2 and 3 and 2.00% after year 3.
-
A direct loan of €1 billion, granted by the Dutch State to KLM, w ith a maturity of 5.5 years and an interest of EURIBOR
12 months (floored at zero) plus a margin of 6.25% for year 1, 6.75% for year 2 and 3, and 7.75% for year 4 and 5. This loan is subordinated to the new revolving credit facility and any other outstanding unsecured debt of KLM.
Both the revolving credit facility and the direct loan w ill be draw n simultaneously on a pro rata basis.
KLM's first drawing under the new revolving credit facility w ill be used to repay and terminate the existing revolving credit facility
draw n on 19 March 2020 for an amount of €665 million (see note 24.7 Credit facilities).
Further draw ings subsequent to the first draw ing are subject to certain conditions being fulfilled by KLM.
Main conditions associated w ith the direct state loan are linked to the airline becoming more sustainable as w ell as the restored performance and competitiveness of KLM, including a comprehensive restructuring plan and contributions made by employees. KLM has undertaken to suspend dividend payments to its shareholders until these tw o loans have been repaid in full.
As of June 30, 2020 KLM has not draw n dow n any amount of these tw o loans.
Both the French and Dutch state aid have been approved by the European Commission respectively on May 4 and on July 13, 2020.
24.6 Maturity analysis
The financial debt maturities breaks dow n as follow s:
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In € millions | As of June 30 As of December 31, | |
2020 | 2019 | |
Maturities in | ||
semester year Y (6 months) | 1,067 | - |
Y+1 | 1,075 | 842 |
Y+2 | 939 | 1,250 |
Y+3 | 2,503 | 1,005 |
Y+4 | 944 | 523 |
Over 4 years | 3,672 | 3,493 |
Total | 10,200 | 7,113 |
As of June 30, 2020, it has been considered that the perpetual subordinated loan w ould be reimbursed according to their most probable maturities (probable exercise date of the issuer call).
The bonds issued in 2014 and 2016 w ill be reimbursed on their contractual maturity date (see note 24.2).
24.7 Credit lines
On March 13, 2020, Air France-KLMdrew down its revolving credit facility concluded f or a total amount of €1.1 billion divided into tw o tranches of €550 million each. The total amount w as repaid on May 7, 2020 and the Group terminated the credit facility.
On March 19, 2020, KLM has draw n down its revolving credit facility concluded on May 23, 2018 for the full amount of €665 million.
KLM's first draw ing under the new €2.4 billion revolving credit facility (see note 24.4), 90% guarantee supported by the Dutch State, w ill be used to repay and terminate the existing revolving credit facility drawn on 19 March 2020 for an amount of €665 million.
These amounts have been included into the short-term financial debt as of June 30, 2020.
25. LEASE DEBT
The lease debt break dow n as follow s:
In € millions | As of June 30, 2020 | As of December 31 2019 | ||||
Non- | Current | Total | Non- | Current | Total | |
current | current | |||||
Lease debt - aircraft | 2,106 | 849 | 2,955 | 2,338 | 789 | 3,127 |
Lease debt - real estate | 609 | 103 | 712 | 618 | 107 | 725 |
Lease debt - other | 176 | 48 | 224 | 193 | 56 | 249 |
Accrued interest | - | 18 | 18 | - | 19 | 19 |
Total - Lease debt | 2,891 | 1,018 | 3,909 | 3,149 | 971 | 4,120 |
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26. NET DEBT
In € millions | June 30, | December 31, |
2020 | 2019 | |
Current and non-current financial debt | 10,200 | 7,113 |
Current and non-current lease debt | 3,909 | 4,120 |
Accrued interest | (56) | (62) |
Deposits related to financial debt | (222) | (227) |
Deposits related to lease debt | (87) | (91) |
Derivatives impact on debt | (4) | 4 |
Gross financial debt (I) | 13,740 | 10,857 | |
Cash and cash equivalents | 4,796 | 3,715 | |
Marketable securities (1) | 110 | 111 | |
Cash secured (1) | 309 | 300 | |
Triple A bonds (1) | 552 | 585 | |
Others | 3 | 3 | |
Bank overdrafts | (3) | (4) | |
Net cash (II) | 5,767 | 4,710 | |
Net debt (I-II) | 7,973 | 6,147 | |
(1) Included in "others financial assets" | |||
In € millions | June 30, | December 31, | |
2020 | 2019 | ||
Opening net debt | 6,147 | 6,164 | |
Operating free cash, cash flow excluding discontinued activities | 1,915 | (623) | |
Coupons on perpetual | - | 26 | |
Disposal of subsidiaries, of shares in non-controlled entities | (357) | (13) | |
Acquisition of subsidiaries, of shares in non-controlled entities | 1 | 1 | |
Lease debts (new and renew ed contracts) | 212 | 589 | |
Unrealised exchange gains and losses on lease financial debts through OCI | (26) | 13 | |
Currency translation adjustment | 49 | 48 | |
Capital increase | - | (54) | |
Amortization of OCEANE optional part | 4 | 8 | |
Other | 28 | (12) | |
Closing net debt | 7,973 | 6,147 | |
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27. DEFERRED REVENUE ON TICKET SALES
This line corresponds to the unused air tickets w hich will be recognized in revenues at the date of transportation. The COVID-19 crisis and the lockdow n of borders cause the Group to reduce the capacity and cancel an important number of flights. In that case, customers can either ask for the refund of the ticket or the issuance of a voucher. As of June 30, 2020, this line includes € 670 million of air tickets (fare and carrier imposed charges) for which the date of transportation has passed and w hich are eligible to refund and € 920 million of vouchers that can be used for future flights.
28. OTHER LIABILITIES
In € millions | As of June 30, | As of December 31, | ||
2020 | 2019 | |||
Current | Non-current | Current | Non-current | |
Tax liabilities | 800 | - | 892 | - |
Employee-related liabilities | 1,258 | - | 1,033 | - |
Non-current asset payables | 60 | - | 96 | - |
Derivative instruments | 813 | 197 | 154 | 107 |
Deferred income | 848 | 18 | 739 | 17 |
Prepayments received | 383 | - | 469 | 1 |
Other | 272 | 101 | 219 | 97 |
Total | 4,434 | 316 | 3,602 | 222 |
Non-current deferred income mainly relates to long-term contracts in the maintenance business.
29. FLIGHT EQUIPMENT ORDERS
Due dates for commitments to firm orders w ith a view to the purchase of flight equipment are as follow s:
In € millions | June 30, 2020 | December 31, 2019 |
2nd semester year Y (6 months) | 549 | - |
Year Y+1 | 1,305 | 1,469 |
Year Y+2 | 1,606 | 1,203 |
Year Y+3 | 1,327 | 1,266 |
Year Y+4 | 1,019 | 1,153 |
> Year Y+4 | 960 | 1,978 |
Total | 6,766 | 7,069 |
These commitments relate to amounts in US dollars, converted into euros at the closing date exchange rate. All these amounts are hedged.
The number of aircraft under firmorder as of June 30, 2020 decreased by four units compared with December 31, 2019 and stood at 104 aircraft. These changes are explained by the delivery of four aircraft over the period.
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Long-haul fleet (passenger)
The Group took delivery of three Airbus A350 and one Boeing B787.
Medium -haul fleet
The Group did not take delivery of an aircraft.
The Group's commitments concern the follow ing aircraft:
Aircraft | To be delivered in | 2nd semester Y | Y+1 | Y+2 | Y+3 | Y+4 | Beyond | Total |
type | Y+4 | |||||||
(6 months) | ||||||||
Long-haul fleet - passenger | ||||||||
A350 | As of June 30, 2020 | 7 | 7 | 8 | 4 | 6 | ||
- | 32 | |||||||
As of December 31, 2019 | - | 6 | 7 | 5 | 7 | 10 | 35 | |
B787 | As of June 30, 2020 | 4 | 2 | 2 | - | 2 | - | 10 |
As of December 31, 2019 | - | 5 | 3 | 3 | - | - | 11 | |
B777 | As of June 30, 2020 | 1 | 1 | - | - | - | - | 2 |
As of December 31, 2019 | - | 2 | - | - | - | - | 2 | |
Medium -haul fleet | ||||||||
A220 | As of June 30, 2020 | 6 | 15 | 15 | 12 | 12 | ||
- | 60 | |||||||
As of December 31, 2019 | - | - | 6 | 15 | 15 | 24 | 60 | |
B737 | As of June 30, 2020 | - | - | - | - | - | - | - |
As of December 31, 2019 | - | - | - | - | - | - | - | |
As of June 30, 2020 | 5 | 16 | 24 | 23 | 18 | 18 | 104 |
Total | |||||||
As of December 31, 2019 | - | 13 | 16 | 23 | 22 | 34 | 108 |
30. RELATED PARTIES
The scope of the related parties did not change significantly during the period. How ever, given the circumstances in relation w ith COVID-19, the Group's relationships w ith its related parties changed in terms of amounts especially with the French and the Dutch states (see note 3.2 Events that occurred in the period), Aéroports de Paris and Schiphol Airport.
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Information and control
Attestation by the person responsible for the first half financial report to June 30, 2020
- hereby declare that, to the best of my know ledge, the condensed financial statements for the first half of the 2020 financial year have been established in accordancewith the applicable accounting standards and give a true and fair view of the assets, financial position and results of the Company, and of all the companies w ithin the consolidation scope, and that the first half activity report presents a true picture of the significant events arising during the first six months of the financial year and of their impact on the first half financial statements, the main related party agreements together w ith a description of the principal risks and uncertainties for the remaining six months of the financial year.
Benjamin Smith
Chief Executive Officer
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Statutory Auditors' review report on the half-year financial information
This is a free translation into English of the statutory auditors' review report on the half-yearly financial information issued in French and is provided solely for the convenience of English-speaking readers. This report includes information relating to the specific verification of information presented in the Group's half-yearly management report. This report should be read in conjunctionwith, and construed in accordance with, French law and professional standards applicable in France.
For the six-month period fromJanuary 1 to June 30, 2020
To the Shareholders,
In compliance w ith the assignment entrusted to us by your Annual General Meetings and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code ("Code Monétaire et Financier"), w e hereby report to you on:
- the review of the accompanying half -yearly consolidated financial statements of Air France-KLMS.A., for the six-month period ended June 30, 2020,
- the verification of the information presented in the half-yearly management report.
These interim condensed consolidated financial statements w ere prepared under the responsibility of the Board of Directors on July 30, 2020, on the basis of the information available at that date in the evolving context of the Covid-19 crisis and difficulties in assessing its impact and future prospects. Our role is to express a conclusion on these financial statements based on our rev iew .
I. Conclusion on the financial statements
We conducted our review in accordance with professional standards applicable in France. A review of interimfinancial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordancewith professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, w e do not express an audit opinion.
Based on our review , nothing has come to our attention that causes us to believe that the accompanying condensed half -yearly consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - standard of the IFRSs as adopted by the European Union applicable to interim financial information.
Without qualifying our conclusion, w e draw your attention to the Note 3.1 " COVID-19" of the condensed half -yearly consolidated financial statements, w hich describes in the context of the sanitary crisis impacting the air transport industry, the measures taken by the Group, as w ell as the financial support mechanisms set up by the French and Dutch States, in consideration of w hich the Air France-KLM's Board of Directors prepared the condensed half -yearly consolidated financial statements using a going concern basis of accounting.
II. Specific verification
We have also verified the information presented in the interim management report established on July 30, 2020 on the interim condensed consolidated financial statements subject to our review .
We have no matters to report as to its fair presentation and consistency w ith the half -yearly consolidated financial statements.
Paris La Défense, July 30, 2020 | |||
KPMG Audit | Deloitte & Associés | ||
Département de KPMG S.A. | |||
Valérie Besson | Eric Dupré | Pascal Colin | Guillaume Crunelle |
Partner | Partner | Partner | Partner |
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Document produced by Air France-KLM's Investor Relations Department
First half financial report 2020 | Air France-KLM 86 |
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Air France-KLM SA published this content on 31 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 July 2020 15:56:05 UTC