Air France-KLM aims to reduce €2 billion in debt

In order to reduce its net debt load by €2 billion in the next two years, Air France-KLM will put a 5-percent cap on capacity growth over the next three years and immediately freeze pay raises, among other measures. The group will also aim to break even on its medium-haul network within three years.

Air France-KLM’s board of directors decided on these measures and developed a three-year transformation plan aimed at restoring profitability during a meeting on January 11.

First, to make sure the debt doesn’t get any bigger, the group will put a hold on capacity growth, reducing the fleet investment program from the more than €6 billion spent from 2009 to 2011 to a €5-billion limit for the next three years. This will be accomplished by deferring aircraft deliveries and choosing to not exercise options on plane purchases.

To generate €1 billion in cash flow, the group will enact a few cost-cutting actions in regard to its employees. According to a company press release, these measures “include a freeze on general pay rises in 2012 and 2013 at Air France and a policy of wage moderation at KLM. The hiring freeze introduced in September 2011 will also be pursued. Additional productivity measures, a further reduction in overhead costs and network adaptations will complete the measures.”

The second billion will be generated through the three-year transformation plan, which will include restructuring of the passenger and cargo business, the group’s maintenance division, and short- and medium-haul operations.

According to Air France-KLM’s December traffic data, cargo last month remained nearly unchanged when compared to November; capacity rose 0.1 percent, month-over-month, with traffic decreasing 0.3 percent. For the year, capacity rose 2.3 percent when compared with 2010, and traffic finished 2011 with a 1.7-percent decline. Load factor was down by 2.7 percent.

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