By Sam Morgan
The European Commission has approved the Dutch government’s €3.4 billion support package for national airline KLM, despite criticism levelled at conditions linked to pay cuts.
Virus quarantines put a significant dent in KLM’s revenues for the first half of 2020, prompting the Dutch government to step in to help its flag-carrier. The €3.4bn comes on top of the €7bn pledged by France to the Air France-KLM group, already approved by Brussels.
“KLM plays a key role for the Dutch economy in terms of employment and air connectivity. The crisis has hit the aviation sector particularly hard,” the EU competition chief Margrethe Vestager on Monday (13 July).
“This €3.4bn State guarantee and State loan will provide KLM with the liquidity that it urgently needs to withstand the impact of the coronavirus outbreak,” she added.
“KLM does not have sufficient liquidity in order to finance the ramp-up of its activities. Therefore, the support from the Dutch State is essential to obtain vital liquidity to face this difficult period,” the EU executive said in a statement.
The Commission’s blessing was ultimately easier to secure than a similar case involving Lufthansa and German government aid worth €9bn, as the Dutch government is already a shareholder of Air France-KLM.
Berlin’s decision to take a 20% stake prompted Vestager’s services to attach extra conditions to the bailout agreement, which will see Lufthansa yield a number of lucrative airport slots at its Frankfurt and Munich hubs.
The final assessment of the KLM deal does not include extra requirements and Vestager concluded that measures linked to profit allocation, working conditions and sustainability were “very good”.
“Member states are free to design measures in line with their policy objectives and EU rules,” the Danish official added.
Given that the Dutch flyer was not in financial difficulty before 31 December 2019, the Commission was able to approve it under its relaxed state aid codex, unlike Portuguese airline TAP, which was assessed under the normal rules.
In late June, the Dutch government unveiled the details of its plan, which is made up of €2.4bn in state-guaranteed bank loans and a €1 billion direct loan. The latter will be disbursed in tranches up to 2025.
But the airline – the oldest continuously operating flyer in the world – will have to make cuts worth 15% in return for that support and there is also an obligation for employees that are on an above-average salary to surrender some of their pay.
That measure is proving to be divisive. According to the terms of the agreement, workers that are paid twice the average will have to forego 10% of their pay, while those on three times the average will lose 20%.
CEO Pieter Elbers told shareholders back in April he would take the 20% cut until the end of 2020.
Six KLM unions railed against that part of the deal last week, writing to Vestager and Council Secretary-General Jeppe Tranholm-Mikkelsen insisting the requirement is against EU labour laws and urging the Commission to nix the bailout until it can be tweaked.
Their objections were not referenced in the EU executive’s statement.
The environmental aspects of the agreement have also been criticised. KLM will have to cut CO2 emissions per passenger-kilometre in half by 2030. Climate analysts have warned that using such a metric will allow overall emissions to increase as it does not cap total output.
Night flights from Amsterdam Schiphol, one of Europe’s busiest airports, will also be reduced, although the government is still coy on how this will be achieved.
Some members of the Dutch parliament wanted much stricter criteria including more ambitious emission targets and a minimum price for plane tickets, which featured prominently in Austria’s bailout for its national airline.
European governments have put together nearly €35bn in support packages for the aviation industry so far.