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Airlines

EU Approves $3.68 Billion Bailout for France's Air France

Strategic Insights

— 2 min read

The European Union has approved a significant bailout for France's loss-making flag carrier, Air France, amidst controversy and expected opposition from Britain and other non-subsidized European airlines. The EU's executive body, the Commission, has allowed France to extend a capital injection of $3.68 billion (20 billion French francs) to Air France in return for modest concessions, with the aim of restructuring the company and making it profitable so it can be sold to the private sector.

Key Takeaways:

  • The EU has approved a $3.68 billion bailout for Air France, with the condition that the airline must meet "very stringent criteria" to ensure that other airlines are not harmed and to make Air France profitable for privatization.
  • The bailout will be provided in three tranches starting immediately and ending in 1996, with the condition that Air France may not pass the aid on to its subsidiary, Air Inter, purchase another airline, increase its fleet, or raise the number of flights it offers faster than the market grows.
  • Air France must pursue the restructuring plan drawn up by the French government, sell the hotel chain Meridien, and submit to monitoring by the Commission.
  • Britain has condemned the decision, with British Airways chairman Colin Marshall stating that the decision will distort the market and constitute a serious setback for the development of a genuine free market in air transport in Europe.
  • Air France will repay $276 million (1.5 billion French francs) it received in March 1993 as part of the decision.
  • The French government has promised not to take legal or other measures to give Air France an unfair advantage, and has agreed to open Orly airport to greater competition.

Statistics:

  • $3.68 billion (20 billion French francs) bailout for Air France
  • 3 tranches of aid starting from immediately and ending in 1996
  • Air France's loss for the last year: $1.3 billion
  • Government subsidies received by Air France in 1991 and 1992: $1.02 billion
  • Number of jobs to be cut by the company: 5,000
  • Frozen salaries for three years: all
  • Suspended promotions: until at least the end of this year

Sources:

  • The European Union decision
  • Air France's restructuring plan
  • Quote from Transport Commissioner Marcelino Oreja: "This is one-time, last-time state aid... Some people are demonizing state aid... but what is important is that state aid not distort competition."
  • Quote from British Airways chairman Colin Marshall: "These are deplorable decisions which will distort the market. They constitute a serious setback for the development of a genuine free market in air transport in Europe."

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