12th January 2012
Air France-KLM: an ambitious three year plan to restore profitability
At its meeting on 11 January 2012, the Board of Directors of
Air France-KLM examined the transformation plan over three
years (2012-2014) for the Group, and the implementation of
the three priorities set out on
9th November last year: restoring competitiveness through
cost-cutting, restructuring the short- and medium-haul
operations and rapidly reducing debt.
The Board of Directors first examined the Group's growth
prospects for the next three years. Given the uncertain
economic environment and the ongoing imbalance between
transport supply and demand, the Board deemed it necessary to
opt for quasi stable capacity for the Air France-KLM Group in
both
passenger and cargo. Consequently, over the next three years
(2012-2014), the Group will only increase capacity by a
little over 5% on a cumulative basis1.
This will lead to a shrinkage of the Group's fleet with an
attendant reduction in the investment program, with the
exception of spending targeted at the ongoing improvement in
operational safety and client service. The investment program
will be reduced from over 6 billion euros over the period
2009-2011 to
below 5 billion euros2 for the coming three
years. This decision has led the Group to adjust its medium-
term fleet plan combining, amongst others, the deferral of
aircraft deliveries and the non-exercise of options.
The Board of Directors also considered as a key priority the
reduction of the Group's net debt by two billion euros to
some 4.5 billion euros by end December 2014. Over the period
2012-2014, two billion
euros in net cash flow will be generated through a
combination of immediate actions and a transformation plan.
New cost cutting measures amounting to some one billion euros
over three years will be implemented immediately. They
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.
These measures, the components of which have already been
fully identified, will be implemented with immediate effect,
in compliance with regulations concerning the information or
consultation of the Group's social partners.
These improvements on their own, however, are not sufficient
to guarantee the durable restoration of the
Group's competitive position and financial strength. The
Board of Directors therefore decided to implement a
transformation plan, encompassing all its businesses, with a
target of generating an additional one billion euros in free
cash flow over three years.
1 excluding the impact of the Provincial Bases
2 before sale and lease back agreements
Free translation into English for convenience only - French version prevailsWebsite : www.airfranceklm-finance.com
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Improved productivity
The return to a satisfactory level of profitability will
require a significant improvement in productivity in all
parts of the Group, which will imply the renegotiation of the
employment rules contained in the existing
collective agreements. Negotiations with the organisations
representing the various categories of employees concerned
will begin rapidly.
Although the passenger business will be the primary focus
with the restructuring of the short- and medium-haul
operations, cargo and maintenance will also have to redefine
their conditions for profitability.
The short and medium-haul network remains indispensable to
the Group's development, assuring not only its presence
throughout Europe, but also feeding the long-haul operations
of the two hubs, Paris-
CDG and Amsterdam.
Since the financial crisis of 2008-2009, the structural
decline in unit revenues has led, despite the NEO plan, to
deepening losses in this business, estimated at some 700
million euros in 2011. As the financial results of recent
quarters demonstrate, the long-haul operations, also subject
to increasing competition, cannot alone offset these
losses.
To restore the medium-haul business to breakeven, the Group
is working on the following structural measures:
- better utilization rate of aircraft and assets;
- significantly improved productivity in all employee categories;
- redefinition of certain activities, potentially leading to more extensive outsourcing in some areas.
******
The Board of Directors considers this progress report has
enabled the definition of ambitious but realistic objectives
for the three year transformation plan. The implementation of
these measures will contribute to reinforcing the Group's
financial position and preserving the current level of
liquidity. It will be the subject of regular updates in order
to measure its progress.
The presentation is available on line at www.airfranceklm-finance.com. An audio conference will take place at 19h00 CET:
to connect to the conference call, please dial
- UK 44 (0)20 7162 0125
- US 1 334 323 6203
To listen to a recording of the conference in English, dial
- UK 44 (0)20 7031 4064 (code: 910159)
- US 1 954 334 0342
Contacts
Dominique Barbarin Bertrand Delcaire
SVP Investor Relations VP Investor Relations
Tel: +33 1 41 56 88 60 Tel: +33 1 41 56 72 59
Email: dobarbarin@airfrance.frEmail: bedelcaire@airfrance.fr
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