Air France-KLM in talks with private equity firm Apollo for a 500 million Euro cash injection

Air France-KLM said on Friday May 20 it had entered exclusive talks with private equity firm Apollo for a 500 million euro ($529 million) capital injection for one of its engineering and maintenance units to help repay French state aid.

“The proceeds of the transaction would enable Air France-KLM and Air France to partially redeem the French state perpetual bonds,” the airline said, adding it would not involve any operational or workforce-related changes.

The airline’s current market capitalisation is 2.73 billion euros. ($1 = 0.9449 euros)

An Air France-KLM spokesperson said the deal with Apollo Global Management would not result in the buyout firm taking an equity stake and was “purely financial”.

The Air France-KLM unit involved owns a pool of spare engines.

A source close to the matter said revenue would be generated through “giving Air France access to this spare engines pool”.

Sale and leaseback deals are common financing mechanisms in aviation, allowing airlines to sell freshly delivered planes and engines to lessors and rent them back to lighten their balance sheets.

But a flood of investment from new sources of funding has increased competition for traditional leasing companies.

The Dutch finance ministry, a shareholder in the airline group, said it supported the proposal.

“Attracting private investors is good for the financial position of the company. We have a common interest that it frees itself of state aid,” the ministry told Reuters.

At 1215 GMT, Air France-KLM shares were up 2.8% to 4.37 euros, extending near-double digit gains this year.

Air France-KLM said in February it planned to raise up to 4 billion euros to repay support it received during the pandemic.

It said this month it was considering measures such as a capital increase and quasi equity instruments to speed up payments to the French state, its top shareholder.]

Shipping firm CMA CGM announced this week it would take a major stake in Air France-KLM.

Reuters.com by Dominique Vidalon; Additional reporting by Anthony Deutsch in AmsterdamEditing by Jason Neely and Mark Potter