Financial strategy
The Group has two medium-term financial priorities: a 3% reduction in unit costs on a constant currency and fuel price basis, and a significant reduction in the gearing ratio.
Reducing unit costs
The Air France-KLM Group is committed to a permanent process to reduce costs. In addition to the Challenge 12 cost-savings plan aimed at containing the increase in costs, the Group plans to improve productivity.
During the 2010-11 financial year, the Group generated €595 million of cost savings within the framework of the Challenge 12 plan.
During 2011, the target of the Challenge 12 plan is to generate €470 million in savings.
Planned actions must translate to a unit cost reduction of at least 3% over 3 years, at constant fuel price and currencies.
Reinforcing the financial structure
Supported by a young and fuel-efficient fleet and despite a context of recovery, the Group has decided to continue to curtail its investment in order to generate cash flow to pay down debt.
Investment plan
At 0.85, the gearing ratio is down 0.3 points between March 31, 2010 and March 31, 2011. The Group aims to further reduce its gearing ratio to 0.5.
Calculation of net debt as of March 31, 2011
| 31 March 2011 | 31 March 2010 | |
|---|---|---|
| Current and non current financial debt | 10,788 | 11,047 |
| Deposits on leased aircraft | (455) | (471) |
| Currency hedges on debt | 36 | 39 |
| Interest not yet due | (119) | (115) |
| = Total financial debt | 10,250 | 10,500 |
| Cash and cash equivalents | 3,717 | 3,751 |
| Investments of over three months | 574 | 343 |
| Triple A deposits | 197 | 297 |
| Bank overdrafts | (129) | (116) |
| = Net cash | 4,359 | 4,276 |
| Net financial debt | 5,891 | 6,224 |
| Consolidated shareholders’ funds | 6,906 | 5,418 |
| Net debt / Shareholders’ funds | 0.85 | 1.15 |
| Net debt / Shareholders’ funds ex hedging instruments | 0.90 | 1.08 |
Shareholder’s equity, net financial debt and gearing ratio
Debt profile
Debt type and maturity profile
At March 31, 2011, 25% of the financial debt is made of bonds:
- Perpetual subordinated bond in Japanese yen, for €241 million
- Perpetual subordinated bond in Swiss francs, for €325 million
- 2020 convertible bond (OCEANE) for €450 million, of which €402 million recorded under financial debt
- 2015 convertible bond (OCEANE) for €661 million, of which €556 million recorded under financial debt
- 2014 bond for €750 million
- 2016 bond for €700 million
The remaining 75% is made of debt secured by assets, mainly aeronautical.
Debt repayment schedule
Analysis of debt by interest rate and currency, at March 31, 2011
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 displays an amount of floating-rate debt lower than the amount of floating-rate treasury. An interest rate increase will consequently have a positive effect on the Group’s financial results.
The average cost of the Group’s debt after swaps stood at 3.87% as of March 31, 2011 (3.64% as of March 31, 2010).
More than 85% of the gross debt is in euros.
Credit lines as of August 30, 2011
| 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 |
