Air France-KLM secures €500m investment from Apollo for spare engines entity

Air France-KLM has secured an investment commitment of €500 million from Apollo Global Management for an ad hoc operating affiliate which will own a pool of spare engines dedicated to the Franco-Dutch airline’s engineering and maintenance activities.

In this connection, Air France-KLM and Apollo Global Management have signed a definitive agreement.

The investment will be made by funds and entities managed by Apollo Global Management by subscribing to perpetual bonds issued by the ad hoc operating affiliate. It will be accounted for as equity under IFRS.

According to Air France-KLM, the proceeds of the deal will allow it and Air France to redeem the perpetual bonds of the French government further, in compliance with article 77 bis of the European Commission’s “Temporary Framework for State aid measures to support the economy in the current Covid-19 outbreak”.

Air France-KLM secures €500m investment from Apollo Global Management for spare engines entity. Photo courtesy of Olivier CABARET/Wikimedia Commons.

Owing to the agreement, Air France-KLM expects to benefit from reduced financing costs. The perpetual bonds will have an interest rate of 6% for the first three years, and gradual step-ups and caps will be thereafter applied.

The airline stated: “This structure will incur no change of ownership, operational and social aspects of Air France Engineering and Maintenance activity. In the future, it could also help finance the acquisition of additional spare engines to support Air France’s fleet renewal program.

“There will be no change in the way Air France uses the spare engines, and no impact on Air France or Air France-KLM employees’ contracts.”