Financial strategy

Reducing net debt is a key Transform 2015 target.

Group net debt

Calculation of net debt

Calculation of net debt

At 31 December 2012, net debt amounts to 5,966 million euros. In spite of an improvement of almost 300 million euros, 2012 full year operating free cash flow was still negative (-51 million euros). Net debt was down by €549 million at December 31, 2012 thanks, notably, to the sale of Amadeus shares.

Debt type and maturity profile

At December 31, 2012, 32% of the current and non current financial debt is made of bonds:

  • Perpetual subordinated bond in Japanese yen, for €251 million
  • Perpetual subordinated bond in Swiss francs, for €347 million
  • 2020 convertible bond (OCEANE) for €420 million, of which €419 million recorded under financial debt
  • 2015 convertible bond (OCEANE) for €661 million, of which €569 million recorded under financial debt
  • 2014 bond for €750 million
  • 2016 bond for €700 million
  • 2018 bond for €500 million

The majority of the remaining 68% is made of debt secured by assets, mainly aeronautical.

Debt repayment schedule

Debt repayment schedule

 

The debt reimbursement maturities are progressive over time. Furthermore, despite a contraction in bank balance sheets, the asset financing market remains open for the amounts envisaged over the period. The Group does, however, monitor developments in this area closely and continues to diversify the sources of its financing with non-European banks and by re-financing assets other than aircraft.

Analysis of debt by interest rate and currency, at December 31, 2012

Most financial debt is contracted in floating-rate instruments. However, given the historically low level of interest rates, the Group has used swap strategies to convert a significant proportion of its floating-rate debt into fixed rates. After swaps, the Air France-KLM Group’s gross debt contracted at fixed rates represents 71% of the overall total. Given this policy, the Group shows an amount of floating-rate debt close to the amount of cash invested at floating rates. The impact of any interest rate variation will consequently be neutral at the level of the Group’s financial results.

The average cost of the Group’s debt after swaps stood at 3.7% as of December 31, 2012.

At December 31, 2012, 87% of the Group’s gross debt, after taking into account derivative instruments, was euro-denominated, thereby significantly reducing the risk of currency fluctuation on the debt.

 

Credit lines as of December 31, 2012

The group has more than 1.8 billion euros of undrawn credit lines.

Contracting company Features Covenants (calculated every 6 months for the corresponding company)
Air France Maturity: April 2016
Drawn amount: €0 million
Undrawn amount: €1,060 million
EBITDAR > 2.5 x (net interest charges + 1/3 operating lease payments)
Non current assets not pledged as collateral > unsecured net debt
KLM Maturity: July 2016
Drawn amount: €0 million
Undrawn amount: €540 million
EBITDAR > 2.5 x (net interest charges + 1/3 operating lease payments)
Non current assets not pledged as collateral > unsecured net debt
Air France-KLM Maturity: October 2017
Drawn amount: €0 million
Undrawn amount: €250 million
EBITDAR > 1.5 x (net interest charges + 1/3 operating lease payments)
Non current assets not pledged as collateral > unsecured net debt
Total Drawn amount: €0 million
Undrawn amount: €1,850 million
 

 

March 2014 presentation:

Transform 2015 financial targets

In the framework of Transform 2015, the group priority objective is to reduce net debt by €2 billion from €6.5 billion at December 31, 2011 to €4.5 billion at December 31, 2014. Over the period 2012-14, the €2 billion free cash flow will be generated through the downward revision of investments and through the implementation of a transformation plan supporting the return to a satisfactory level of profitability.

Downward revision of investments

The group has opted to significantly cut its investments in line with a limited increase in capacity in both passenger and cargo. As a result, the Group has revised its fleet plan and investment program with the exception of investments aimed at the ongoing improvement in operational safety and customer services (€500 million over the three years of the plan). Investment was reduced from an average gross figure of €2.1 billion until 2011 to €1.6 billion in 2012, €1.2 billion in 2013 and €1.4 billion in 2014. This decision led the Group to adjust its medium-term fleet plan combining, for example, the deferral of aircraft deliveries and the non-exercise of options. The Group also decided to limit sale and leaseback transactions (€0.6 billion in 2012, €0.1 billion in 2013 and none in 2014).

Return to a satisfactory level of profitability: EBITDA of 2.5 to 3 billion euros in 2014

Returning to a satisfactory level of profitability will be achieved through a very significant improvement in productivity across the company implying both the renegotiation of the employment conditions in the existing collective agreements and the implementation of industrial actions plans aiming in particular to a higher utilization rate for aircraft and assets.

In consequence, the group aims to achieve an EBITDA of 2.5 to 3 billion euros in 2013, compared to 1.3 billion euros in 2011 and 1.4 billion euros in 2012, taking the net debt/EBITDA ratio to below 2 (4.8 at December 31, 2011) by the end of 2014.

net debt/ebitda ratio

Regulated information