A consensus-meeting Q3 and unchanged outlook

Air France-KLM delivered a new record Q3, despite being broadly in line with the consensus. The FY operational objectives were reconfirmed. Both the recently-confirmed agreement with Apollo to raise a further €1.3bn in non-dilutive quasi-equity financing and the acquisition of a non-controlling stake in SAS support our upbeat stance on the name. Our 2023 EPS forecast has been slightly upgraded and we reiterate our positive recommendation.

The Netherlands’ preemptive green efforts might upset KLM’s competitiveness and profit rebuilding

KLM might suffer more from the Dutch government’s environmental initiatives as a transfer tax is under consideration to help households with energy bills, on top of the noise-related flight cap at Schiphol (legal battle still in progress).

Profitability still improving and encouraging mid-term ambitions despite slight short-term cost pressure

Air France-KLM’s Q2 sales and profit were both consensus-beating, along with a record margin. The confirmed and under-discussion non-dilutive equity strengthening measures are another plus. Traffic guidance has been maintained for the current FY, while the group now sees a slightly higher unit cost. The mid-term goals look ambitious and came in above the current consensus. We expect an increase in the consensus and we have upgraded our estimates.

Narrowed traffic forecast; further equity strengthening under negotiation

Air France-KLM’s Q1 results were slightly lower than the market’s expectations. Leverage has been further improved and several quasi-equity financing initiatives under discussion may enable further balance sheet reinforcement. However, the capacity forecast for the full year has been seen as weaker, mainly on the more profitable longer-haul activities. We expect a downgrade in the consensus and our estimates.

Free from the state-aid restrictions henceforth

Air France and KLM have both fully repaid their state rescue funding and are free from the related operational constraints from now on. We expect the group to carry forward its M&A ambitions and implement better integration of the two flag carriers, but the reinstatement of a dividend payment appears unlikely. We reconfirm our optimism on the name.

Seemingly ready for take off

Following an update with the group’s IR, we reconfirm our optimism about Air France-KLM’s recovery in the current year. No major change is expected to our estimates.

Air France-KLM delivered a sparkling year-end transcript

The group’s Q4 revenue and operating profit beat market expectations by 4.5% and 21.8%, respectively. This explosive performance was a great surprise for the stock and a positive indicator for the industry. The plans for further balance sheet strengthening by restoring cash generation and further repaying down the state-aid package relieving the consolidation constraints were also well-received. We expect an upgrade in the consensus and our target price.

Better is not good enough

Despite the well-received Q3 results showing some encouraging improvements, the market was disappointed by the mediocre Q4 outlook due to the ongoing airport chaos at Schiphol, while the group had been expected to follow its peers and upgrade its guidance. Regardless, we continue to expect an increase in the consensus and our estimates to be closer to the guidance.

Surprising Q2 but further balance sheet strengthening is still needed

The market applauded the group’s Q2 performance, which returned to positive for the first time since the pandemic and came in ahead of the most optimistic analyst estimate. The group slightly cut its Q3 capacity outlook considering the “operational disruptions” but forecasts a significant operating profit. We expect an upgrade in our estimates.

Taps investors for €2,256m to repair its balance sheet

Air France-KLM will launch a rights issue with 3-for-1 preferential subscription rights for an amount of €2,256m, implying c.81% of its market cap as of yesterday. The subscription price presents a 40% discount on the TERP. The French and Dutch states will maintain their equity participation post-recap and CMA CMG will become a reference shareholder with an up to 9% stake. We expect a downgrading in the consensus and our target price due to a larger-than-expected dilution effect.

Equity injection from CMA CGM and Apollo

Last week, Air France-KLM announced an auspicious long-term collaboration with CMA CMG in global air freight and ensured a share acquisition of 9% post-recap from CMA CMG as well as another €500m from Apollo. The financing proceeds could accelerate the airline group’s redemption of state rescue packages, downsize its financial expenses and debt positions and repair its balance sheet. The huge dilution uncertainties remain but the confirmation of investors is always pleasant.

Is the summer dream coming true?

The market reacted positively to Air France-KLM’s consensus-beating Q1 results and blooming early-ticket sales for this summer’s holidays. The optimism is hoped to help the group accelerate the strengthening of the balance sheet.

China Eastern Airlines' recap participation becomes more unsure now

An aircraft with 132 people onboard operated by China Eastern Airlines crashed yesterday. The expected lingering aftermath may hamper China Eastern Airlines’ ability and willingness to participate in Air France-KLM’s massive recapitalisation plan.

Market rumours of an equity participation in ITA

There are market rumours that AF-KLM might propose a majority equity investment with Delta in ITA, although we consider such a majority equity participation by the group is unrealisable by 2024.

Consensus-beating FY21, significant dilution on the agenda

Air France-KLM reported better-than-expected results at the end of 2021, for the second quarter. However, the market’s enthusiasm was affected by its capital strengthening plan of up to €4bn, compared to its current market cap of €2.6bn. The group intends to repay all state rescue supports as early as possible to restore its net debt position and unlock various operational and strategic constraints.

Well positioned for future success

Strong performance against tough market conditions

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