Tuesday, September 05, 2017

Air France-KLM Shareholders Back Delta, China Eastern Minority Stakes: Move should strengthen the airlines’ position in the lucrative trans-Atlantic market

The Wall Street Journal 
By Robert Wall
Sept. 4, 2017 5:09 a.m. ET

Air France-KLM shareholders on Monday backed Delta Air Lines Inc. and China Eastern Airlines Corp. taking minority stakes in the Franco-Dutch airline to strengthen the partnership among three of the world’s biggest carriers.

Delta in July said it planned to acquire a 10% stake in Air France for €375 million, valued at the time at about $437 million, as the longtime partners aim to strengthen their position on the lucrative trans-Atlantic market. China Eastern, a Delta partner in China, also would buy 10% of Air France. The two carriers will spend a total of €751 million to acquire the stakes in Air France.

A large majority of Air France-KLM voting shareholders backed issuing the new shares to Delta and China Eastern at a general meeting in Paris.

Air France and Delta have been trans-Atlantic partners since 1999, predating the French airline’s merger with KLM Royal Dutch Airlines in 2004. The airlines received U.S. antitrust immunity in 2009 to coordinate fares and schedules and share revenue. Such immunity is the closest thing to a merger allowed under U.S. and European rules that limit foreign shareholding in airlines.

Air France-KLM Chief Executive Jean-Marc Janaillac told shareholders the deal would strengthen the carriers’ control over trans-Atlantic flights. It would also help strengthen Air France-KLM’s balance sheet by reducing debt, he said.

Shareholders also backed giving Delta and China Eastern each a representative on the Air France-KLM board.

As part of the deals Air France in July said it was taking a 31% stake in Virgin Atlantic Airways Ltd. from majority owner Richard Branson’s Virgin Group Holdings Ltd. for £220 million ($285 million). Delta already owns 49% of Virgin Atlantic. Air France said it has a put option to sell back the shares should that become necessary because of Britain’s decision to leave the European Union. Foreign ownership in airlines is generally tightly regulated, though uncertainty remains over those limits in Britain after Brexit.

The transactions still require regulatory approvals. The airlines expect the equity investments to be concluded next year. The French state’s stake in Air France-KLM will shrink to 14.1% from 17.6% through the transaction.

The equity investments are part of a wider push among airlines to partner more closely amid continued regulatory blocks to most cross-border mergers. Qatar Airways has become the largest shareholder in British Airways  parent International Consolidated Airlines Group SA. United Continental Holdings Inc. has a 5% stake in a low-fare Brazilian carrier and is negotiating to invest in Colombian flag carrier Avianca Holdings SA.

Air France-KLM Chief Financial Officer Frederic Gagey said consolidation in the fractured global airline market should help boost returns.

Original article can be found here ➤ https://www.wsj.com

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