AFI-KLM reveals more details of “Perform 2020” restructuring plans

Dino D'Amore
By Dino D'Amore September 11, 2014 15:26

AFI-KLM reveals more details of “Perform 2020” restructuring plans

Air France-KLM Group has revealed further details of its “Perform 2020” root-and-branch restructuring plans, in which it pledged to improve its core earnings by 8-10% per year through to 2017.

The Perform 2020 plan calls for new aircraft for its Transavia low-cost unit in Europe, coupled with further restructuring of other loss-making divisions.

Europe’s second-largest traditional network carrier said that more “belt-tightening” is needed to confront low-cost rivals easyJet and Ryanair in Europe, while trying to compete against fast-growing Gulf carriers on longer routes.

The plan is the successor to the Transform 2015 restructuring programme, which is due to expire at the end of the year after achieving more than EUR1 billion  (US$1.29 billion) in savings.

Air France-KLM also stated it aims to keep its adjusted net debt below 2.5-times core earnings, measured as earnings before interest, tax, depreciation, amortisation and aircraft rental payments (EBITDAR), from 2017.

It said its targets were consistent with a return on capital employed (ROCE) of 9 to 11% in 2017. This compares with 3.2% reported by the group for 2013.
Group Chief Executive Alexandre de Juniac said the plans would lead to a “significantly improved risk profile both operationally and financially”.

Air France-KLM said it would invest in improved products and services for long-haul networks and boost the performance of its hubs, while revamping its short- and medium-haul operations and expanding its low-cost unit, Transavia.

By 2017, Transavia will have a fleet of 100 aircraft, compared with 41 to date, and will start using foreign bases that French media have speculated will be located in Germany and Portugal. Transavia operates Boeing 737s.

The first phase of Transavia’s overhaul will be funded by EUR339 million raised from the partial sale of a stake in travel technology firm Amadeus this week. Transavia’s expansion to more than 20 million annual passengers by 2017 will contribute EUR100 million of additional EBITDAR in that year, with operating profits targeted by 2018, the Franco-Dutch group said in a statement.

Air France-KLM also said it would also create a single business unit for point-to-point activities under its own brand and that of regional subsidiary HOP!.

Air France-KLM also aims to bring its cargo unit back to operating break-even in 2017 as it implements plans, already announced, to reduce its fleet of dedicated freighters planes from 14 to five.

The carrier is also ready to make acquisitions to support the growth plans of its MRO division, which it expects to generate EUR50-80 million of additional EBITDAR in 2017.
Overall, Air France-KLM aims to maintain an annual unit cost reduction rate of 1 to 1.5% per-year, the company said.

Dino D'Amore
By Dino D'Amore September 11, 2014 15:26